Corporate Responsibility Magazine (the new name of CRO Magazine) announces its 11th annual 100 Best Corporate Citizens List, known as the world’s top corporate responsibility ranking based on publicly-available information and recognized by PR Week as one of America’s top three most-important business rankings.
Navigating the Methodology
In 2009, the members of the CRO Association’s 100 Best Corporate Citizens Methodology Committee—co-chaired by Eaton’s Joseph Wolfsberger and Miami University of Ohio’s Brian Ballou and Dan Heitger—met a total of eight times to openly debate how the List should be run. Active members of the Committee (as of the September 29, 2009 meeting) included no shrinking violets: Gregg Anderson of Crowe Horwath, Mark Bateman of IW Financial, Amy Borun of Candela Solutions, Amit Chatterjee of Hara, Elliot Clark of CR Magazine, Terrence Clark of CA, Richard Crespin of CROA, Suzanne Fallender of Intel, Tim Fort of George Washington University’s Institute for Corporate Responsibility, Rebecca Freyvogel of the U.S. Chamber of Commerce, Cam Hoang of General Mills, Mitch Jackson of FedEx, Stephen Jordan of the U.S. Chamber of Commerce, Stanley Litow of IBM, Marcela Manubens of Phillips Van Heusen, Jonathan Marks of Crowe Horwath, Norman Marks of SAP, Kevin Martinez of KPMG, Debra McLaughlin of Symantec, Bo Miller of Dow Chemical, Robert Pojasek of Harvard University, Justin Smith of Domtar Paper, Catherine Stewart of Cisco, Jay Whitehead of CROA, and Joseph Wolfsberger of Eaton. As in 2008 and 2009, the data was gathered from 100-percent, publicly-available sources and computed by IW Financial, the Portland, Maine-based financial analysis firm serving the ESG (Environment, Social, Governance) investment community. Data in each category is of two types: true/false or numerical. “True” counts as a positive value, “False” counts as a negative value, and “no answer” counts as neutral. Numerical values are compared with all of the companies’ other numerical answers in order to generate a ranking.
Methodology Changes For 2010
In order to facilitate meaningful year-over-year comparisons, the committee decided that it would be evolutionary rather than revolutionary in its change management. To facilitate an orderly evolution, it set a target to evolve one category’s metrics each year. For 2010 the metric chosen for change was the Financial category.
In 2009 the Financial metric was limited to a single data point: the three-year total return, based on the Morningstar definition. For 2010, however, the Committee was convinced that one metric was an insufficient measure. Why? Well, for one thing, in 2002 companies such as Enron, Worldcom, and Tyco had scored well on this one metric—just prior to collapse as the result of massive fraud. As a result, committee members considered a total of 10 different scandal-resistant metrics within the Financial category, eventually settling on seven. Each data point is weighted equally.
A New Technical Issue: Tie-Gaps
A technical issue that raised its head in 2010 for the first time is the issue of “tie-gaps.” A “tie-gap” happens when several companies are tied for the same score, which results in a “tie-gap” between those tied companies and the next-highest score. In the Olympics, for example, if two competitors are tied for the top score, each gets a gold medal, and the next-highest score earns a bronze medal. The silver medal is sacrificed for the “tie-gap.” Similarly, in U.S. News and World Report’s 2010 rankings of Top Public Schools: National Universities, for example, after the #1 school UC Berkeley, two schools tied for #2, UCLA and University of Virginia, and the next-ranked school, the University of Michigan got a #4 ranking. The #3 position was sacrificed for the “tie-gap.” This is important because mathematically the 100 Best Corporate Citizens List recognizes the ranking as a company’s score in any given category. The impact comes when a large number of companies tie in a category. For example, in 2010 in the Corporate Governance category, a record 267 companies tied for the #1 rank. That means that the #2 companies in that category earned a #268 rank. And that 268 value figured into those companies’ total scores. In this example, if we eliminated the “tie-gap” and counted #268 as #2, mathematicians and statisticians tell us that we would be disrespecting the achievement of those ranked #1. Also, if we re-cast the entire list to eliminate “tie-gaps,” the ranking would be significantly altered. As a result, the 100 Best Corporate Citizens List will continue to include “tie-gaps” using the generally-accepted Olympics and U.S. News formats for rankings. This year, however, it will also show the “tie-gap equivalent” score—shown as (T-XX) next to the mathematical rank. The question of how to treat “tie-gaps” in the future will be a topic for consideration by the 100 Best Corporate Citizens Methodology Committee when it next convenes.
Warning Notice: From Penalty Boxes to Yellow and Red Cards
For both better and worse, the 100 Best Corporate Citizens List is a digital representation of analog activities. That’s why our digit-head friends (at Wharton and U-Chicago, who believe that math explains everything) love the List. Yet any numerically-based ranking is living proof that some things defy digitization, including pending administrative or legal actions. This is why our journalism tells stories to qualify these quantifications. It is also why we adapt the quantifications themselves.
Each year, based on the numbers, some companies make “The List,” despite some self-caused reputational damage, which usually appears as a pending or completed administrative or official legal sanction. From 2007 to 2009, we used an ice hockey-style Penalty Box for otherwise List-worthy firms that had a large-scale official or public blemish on their recent records. The Penalty Box was our way of protecting the integrity of the 100 Best Corporate Citizens List.
But over time, we’ve seen that the Penalty Box is a one-size-fits-all sports penalty. In hockey, the penalty box treats technical infractions the same as life-threatening violence that off the ice would mean jail time. As the 100 Best Corporate Citizens List has become more valuable, transparent, and heavily-scrutinized, we have seen need for a penalty better suited for today’s CR field—one that is entirely multinational, regulated by hundreds of often-conflicting entities, and often second-guessed. In other words, we needed a more European approach. So we turned from hockey to what the French call Le Foot.
European football, a.k.a. soccer, runs a sophisticated, two-level penalty regime—the yellow card for a caution, the red card for an expulsion. Yellow-red was introduced for the Brazil-Italy 1970 FIFA World Cup final in Mexico City (editor’s note: Brazil won 4-1). That game was the first-ever World Cup broadcast live on TV in color. It had a reported worldwide audience of more than 400 million, a record at the time. In that tournament and since, the yellow-red format has survived millions of media debates and billions of barroom arguments. It is often cited as one of the keys to soccer’s ever-growing popularity and sustainability.
So starting this year, the 100 Best Corporate Citizens List dumps the Penalty Box in favor of yellow and red cards.
On the 2010 List, a Yellow Card icon next to a company’s listing indicates a caution—a notice of a pending infraction claim that has not yet risen to the level of expulsion, but might if the official sanction level escalates. The 2010 List saw only one company expelled due to a Red Card, Pfizer. (To learn precisely what pfizer’s infraction was, please read on.
The Details Behind the 2010 Yellow and Red Cards
2010 Yellow Cards
Intel: In December 2009, Intel faced antitrust charges from the Federal Trade Commission for potentially illegal sales tactics for its CPUs and GPUs. The company was also recently fined $1.45 billion for violating European anti-trust laws for similar reasons.
Microsoft: Microsoft has been involved as a defendant in antitrust cases brought by the European Union and U.S. state governments, and has recently settled with the E.U. regarding web browser competitive concerns.
Procter & Gamble: On October 29, 2009 the U.S. Food & Drug Administration issued a warning letter to P&G, notifying the company that its “Vicks DayQuil Vitamin C” and “Vicks NyQuil Plus Vitamin C” are allegedly illegally marketed combinations of drug ingredients and a dietary ingredient.
Exxon Mobil: In July 2009 Exxon Mobil was accused by the Texas General Land Office of sabotaging oil wells in the 1990s to prevent other producers from tapping fields it no longer wanted. If allegations are proven, the company could be fined more than $1 billion. In October, 2009 a federal jury found Exxon Mobil liable for contaminating groundwater in New York City and awarded the city $104.7 million in compensatory damages.
Citigroup: New York Attorney General Andrew Cuomo has accused Citigroup of violations for having paid hundreds of millions of dollars in bonuses to more than 1000 of its employees, 738 of whom received more than $1 million each. At the end of 2009, the company was reported to be working on an agreement with federal officials to return a portion of its bailout money. Restrictions were made in 2009 by the federal government regarding pay limits for bailed-out companies’ top 25 earnings. Returning its bailout funds would free the company from such pay limits going forward.
2010 Red Cards
Pfizer: The company was recently fined $2.3 billion by the U.S. Department of Justice, after its subsidiary Pharmacia & Upjohn pleaded guilty to a felony violation of promoting off-label uses of Bextra. The complaint charged that the company sent doctors on all-expense-paid trips to resorts, gave out free massages, and paid kickbacks to doctors to get them to prescribe the drug for off-label uses