100 Best Corporate Citizens 2002

See the full list here.

It’s one of the oldest questions in the field of business ethics: Does socially responsible behavior pay off on the bottom line? New research shows it does, based on last year’s list of the 100 Best Corporate Citizens. The overall financial performance of the 2001 list of the 100 Best firms was "significantly better" than the remaining companies in the S&P 500, according to recent analysis by Elizabeth A. Murphy and Curtis C. Verschoor, professors in the School of Accountancy and Management Information Sciences at De Paul University in Chicago. The difference was "strikingly large," Verschoor wrote in Strategic Finance magazine, January 2002. Using Business Week’s ranking of firms by financial performance (based on factors like sales growth, profit growth, and return on equity), the mean ranking of the 100 Best was "more than 10 percentile points higher" than other firms. The 100 Best Corporate Citizens also had a "significantly better reputation among corporate directors, security analysts, and senior executives, based on the 2001 Fortune magazine survey of "most admired companies,’" Verschoor wrote. "This may be the most concrete evidence now available that good citizenship really does pay off on the bottom line."

What’s telling is that financial performance gets only one-seventh weight in the ranking of the 100 Best Corporate Citizens. Companies make the list for serving seven stakeholder groups well, and stockholders are just one. The other six are employees, the community, the environment, overseas stakeholders, minorities and women, and customers. (Social ratings were provided by KLD Research and Analytics. See page 13 for methodology). If the Strategic Finance study is right, what we have uncovered with the 100 Best is a model of superior management. That makes this year’s list all the more intriguing for what it tells us about these firms’ management styles. Indeed, by studying the cutting-edge practices of these firms, we find model business strategies in a variety of areas of concern– from layoffs and sweatshops to predatory lending and the environment. These firms show there are better ways to handle these issues than the ruthless practices that are too often the norm.

Mapping the 100 Best

Geographically, California is home to 21 of this year’s best corporate citizens. On the other coast, New York boasts 12 of the best, and in the Midwest, eight are found in Minnesota and seven in Illinois. And of Indiana’s two representatives, Cummins Engine made it into the top tier at No. 7 (up from 62 in 2000).

Looking at the list over the past three years, we’ve noticed a good number of companies continue to make the grade year after year. Forty-nine have maintained a spot on the list all three years. Five sterling firms have been in the Top 10 the entire time: Fannie Mae, Hewlett-Packard, Herman Miller, Procter & Gamble, and IBM. IBM captured the No. 1 position two out of three years, Fannie Mae has been holding third place for two years, and Hewlett-Packard maintains a second place stronghold for the third year in a row.

More than a dozen firms have made substantial progress in moving up in their ranking during their three years on the list. Timberland made the most progress, moving from No. 92 in 1999 to No. 14 this year. In November 2001, Timberland was also honored with a Business Ethics Award, for its community service partnerships and volunteerism. (See www.business-ethics.com) Among other firms making substantial progress were the St. Paul Companies, No. 4 this year, up from 85 in 2000; General Mills, moving from No. 67 in 2000 to No. 9 this year; and Avon Products, advancing from No. 64 two years ago to No. 10 today.

Twenty-six of this year’s top 100 are making their first-ever appearance on the list. Among newcomers we welcome this year are Bank of America (No. 15), Lucent Technologies (No. 17) and Federal Express (No. 22).

Serving minorities and women--inside and outside

Looking at firms that were "best in class" in service to various stakeholders, we find inspiring cutting-edge management practices. For example, tying for top honors in service to minorities and women this year were Fannie Mae (No. 3) and IBM (No. 1). Fannie Mae serves these stakeholders externally while IBM’s approach is internal--but both represent model strategies in their own way.

The purpose of Fannie Mae, a private company with an unusual federal charter, is to spread home ownership among Americans. Its ten-year, $2 trillion program--the American Dream Commitment--aims to increase home ownership rates for minorities, new immigrants, young families, and those in low-income communities.

In 2001, over 51 percent of Fannie Mae’s financing went to low- and moderate-income households. "A great deal of our work serves populations that are under-served, typically, and we’ve shown that it’s an imminently bankable proposition," said Barry Zigas, senior vice president in Fannie Mae’s National Community Lending Center. "It is our goal to keep expanding our reach to impaired borrowers and to help lower their costs."

That represents a striking contrast to other financial firms, many of which prey upon rather than help low-income borrowers. To aid the victims of predatory lenders, Fannie Mae allows additional flexibility in underwriting new loans for people trapped in abusive loans, if they could have initially qualified for conventional financing. In January the company committed $31 million to purchasing these type of loans.

At IBM, the commitment to women and minorities is internal, focused on policies for employees and suppliers--such as manager incentives for hiring and promoting women and minorities, diversity councils, loans and technical assistance to minority suppliers, child care centers in 58 locations, and adoption aid grants of $2,500 each. Programs for families are particularly strong, with up to 56 weeks of family leave and two weeks paid leave for new fathers. It’s little wonder in 2001 IBM was ranked in the top ten of Working Mother magazine’s best workplaces for mothers.

The company also placed first among 50 companies ranked by Careers & the Disabled magazine for accommodating the disabled. One example is IBM’s Entry Point program, which places individuals with disabilities in business through internships. That’s how Tim Scamporinno came to work for IBM in San Jose, Calif., where he leads a 20-member team of computer professionals. "As a result [of Entry Point], my talents have been recognized, not overshadowed by my disability," he was reported saying on the Entry Point web site.

Good Citizens of the Community

In the area of service to communities, Minnesota-based St. Paul Companies topped its peers for the second consecutive year--in large part because of its innovative and generous giving (2 percent of net earnings), for programs that increase teachers of color, support affordable housing, or promote voluntary civic activity.

The company’s Minneapolis-based neighbor, General Mills, (No. 9)--also from "Minnesota Nice" territory--took second place in community service. In fiscal 2001, General Mill’s overall corporate giving reached $45 million, exceeding the target of 3 percent of domestic pretax earnings. Going beyond cash, the firm’s strategy combines money with volunteering, often focusing both in the company’s area of expertise: food. General Mills donated the equivalent of two semi-trailer loads of food each day in 2001, placing it among the top three U.S. food contributors to people in need.

More innovatively, in 1997 the food giant helped establish Siyeza, a frozen soul-food processing company in the inner-city community of North Minneapolis, with an initial $600,000 commitment. That was followed by a $1.5 million no-interest loan to Siyeza, accompanied by help from 100 General Mills volunteers. Alfred Babington-Johnson, Siyeza board chair, told Worth magazine recently, "They’ve volunteered their expertise in every conceivable facet of the operation, from developing marketing plans to package design." Siyeza’s current workforce of 80 employees--four out of five of them from poor neighborhoods--is expected to grow to 175 at peak capacity.

Leading Green Corporations

In service to the environment, this year saw an impressive six-way tie, with identical head-of-the-class scores for Herman Miller (No. 8), Intel Corp. (No. 11), Whirlpool (No. 29), Gillette (No. 38), Baxter International (No. 40), and Modine Manufacturing (No. 62).

Furniture maker Herman Miller offers a good illustration of how these environmentally superior firms operate. In 2001, it won the Waste Wise Program Award from the EPA for recycling in one year 23 million pounds of waste, and reusing another 21 million pounds for fuel to heat the main site. But environmental manager Paul Murray says that’s just the tip of the environmental iceberg.

The environmental department Murray heads is small for a company the size of Herman Miller--2000 revenues of $2 billion--but he says that’s intentional because of the firm’s team approach to sustainability. "We’re trying to get a well-rounded group involved that are not just made up of my environmental professionals," said Murray.

He’s accomplished that with the Environmental Quality Action Team (EQAT), a volunteer effort directly involving 300 employees, which provides oversight for environmental activities. It’s headed by a central steering committee that includes leaders of six teams. The teams concentrate on issues like setting strategies, communicating environmental objectives to constituencies, considering the impact of the buildings and grounds, and examining new products for environmental impact.

In April the company will unveil a new environmental initiative called Design for the Environment, created with eco-efficiency experts William McDonough and Michael Braungart, offering policies for engineers on issues like designing for disassembly (using staples instead of glue, for example), and using a high proportion of recycled content.

When asked for his definition of sustainability, Murray answers, "Something that’s profitable," and laughs. "Besides the typical definition that our company adheres to--which is not doing business where it will harm future generations--if we aren’t making money at this, we will be out of business. And then we won’t be doing anybody any good."

With service to employees, four firms tied for top score: Southwest Airlines (No. 20), Corning (No. 31), Northwest Natural Gas (No. 54), and Nucor (No. 57). An exemplar here is Southwest Airlines, the Dallas-based airline whose 27,000 employees are 83 percent unionized, and which is known to be employee-centered and non-hierarchical. What’s striking about this firm is its no-layoff policy. In the wake of the Sept. 11 terrorist attack when the industry faced significant losses, many airlines cut schedules and reduced workforces by up to 20 percent. Southwest did not lay off employees then, nor has it ever in its 31-year history.

Taking a creative approach to the crisis, the firm maintained a full flight schedule, cut fares, and expanded into markets that other airlines were pulling out of. The company also received voluntary commitments from employees to take pay cuts, forego profit-sharing, and donate hours.

For surviving the crisis with an intact workforce, spokesperson Linda Rutherford credits the "indomitable spirit of Southwest employees’ keen attention to being a low-cost operation." Also important, she said, was the fact senior management quickly communicated what it was doing to avoid layoffs. "There’s a lot of psychic value in that. It created a sense of stability that allowed our employee team to focus more quickly."

The creativity shown in the firm’s approach to layoffs shines through in many other aspects of the airline. As the leader in value pricing, the airline offers no assigned seats, no meals, and no first class travel. Yet with its cost-cutting approach, it is known for having the quickest turnaround time in the industry and has ranked first in several quality studies. Southwest Airlines offers one more illustration that good corporate citizenship indicates superior management.

Serving Stakeholders Across the World

Often overlooked stakeholders are overseas factories and suppliers, plus the communities around them. Tying for top marks in service to these non-U.S. stakeholders are five firms: Procter & Gamble (No. 5), Avon Products (No. 10), State Street Corp. (No. 12), H.B. Fuller (No. 13), and Starbucks (No. 21).

Avon offers a good example of the cutting-edge practices at work here. In an era when many firms outsource work to sweatshops, Avon ensures employees at its suppliers have the best working conditions possible. The company’s Suffern, N.Y. manufacturing plant was the first recipient of Social Accountability 8000 certification, an independent program that establishes social standards and monitors factories for compliance, on issues like safety, wages, and the right to join unions. Fitzroy Hilaire, director of supplier development and global sourcing, said he now requires all Avon factories and suppliers--both here and abroad--to pass an SA800 audit.

"SA8000 allows a company to have an improved social atmosphere. If implemented properly, it should make for a happy employee and, as such, give the company an advantage in that the employees would be more suited and more adaptable to doing work," Hilaire said.

In other service to overseas stakeholders, Avon has been a strong supporter of women’s health initiatives, contributing to fundraising for breast cancer awareness in the U.K, AIDS awareness in Thailand, and self-esteem workshops for women with cancer in Australia.

That’s just one company’s approach to serving non-U.S. stakeholders. Starbucks and Procter & Gamble take a different tack, both focusing on supporting overseas small-scale suppliers, but in different ways. Starbucks takes the "fair trade" approach, which returns higher profits to selected indigenous coffee growers. P&G, which markets the Folgers brand, in early 2002 announced a $1.5 donation to kick off a new long-term alliance with TechnoServe, which supports small-scale coffee producers through education, remodeling schools, and donating computers.

Corporate Social Responsibility--Part of Day-to-Day Business

What marks these companies is how they embed corporate social responsibility (CSR) in strategy, often outlining it in policy. Hewlett-Packard has made CSR one of seven corporate objectives. General Mills has a policy statement encouraging employees to volunteer and a volunteerism department at the General Mills Foundation, which helps explain why 70 percent of the workforce volunteers. Environmental commitment is a bullet point in Herman Miller’s Blueprint for Corporate Community.

These are a rare breed of committed companies. Getting on the list isn’t easy, and staying on it is hard. Thirty-one companies on last year’s list dropped off, including Polaroid, Honeywell, Apple Computer, Dell Computer, Gap and Nordstrom. Companies that never made the list include the much-admired General Electric--and Enron.

That’s not to say these 100 companies are perfect. In reviewing concerns about these firms, we’ve seen lawsuit settlements in the millions, layoffs of thousands of employees, and other charges leveled about unfair business practices. In some cases Business Ethics pulled companies who might otherwise have made the list--as with Dollar General, which in January made a substantial restatement of earnings for 1998 to 2000. Or with Providian Financial Corp., which in December 2001 paid $150 million to settle class action lawsuits alleging cheating of credit card holders. No matter how glowing their three-year record of stakeholder service, these incidents said these firms did not belong on the list.

The rest are here for a reason. The list itself is here because it’s important to catch companies in the act of doing good. When that is done, perhaps other corporations will catch on to what it means to be a good corporate citizen.

Article by Mary Miller . Statistical analysis by Sandra Waddock and Samuel Graves. Social data from KLD Research & Analytics.