A higher standard of worthiness
Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”
The 2012 Good Company Index has a slightly different methodology from the inaugural index. While some might initially see this as “moving the goal posts,” we think our changes reflect the ever-evolving understanding of what it means to be a worthy company. In particular, we made some changes in how we assessed companies as stewards.
We believed it was important to capture a company’s political transparency, especially in the wake of the landmark Supreme Court Citizens United ruling, which removed key political spending restrictions on corporations. The effects of this ruling have been quite visible in the 2012 presidential election. Unlimited independent corporate spending in the political arena threatens to undermine important elements of the democratic process, making transparency in this arena a vital characteristic of worthy stewards.
Such information was not available for our first rankings. But a recent joint effort of the Center for Political Accountability and the Carol and Lawrence Zicklin Center for Business Ethics Research at The Wharton School at the University of Pennsylvania has resulted in the CPA-Zicklin Index of Corporate Political Accountability and Disclosure, which rates how companies currently handle and report on their political spending.
We also added an ethics element. The Ethisphere Institute’s World’s Most Ethical Companies recognizes companies with outstanding performance on criteria including programs for complying with laws, governance, corporate citizenship, and a culture of ethics. The significance of a company-wide ethical ethos is growing in light of continuing corporate scandals that harm communities. Among the most recent ones: allegations of extensive bribery in Mexico by Wal-Mart officials, evidence that Barclays and possibly other banks rigged a key international interest rate, and accusations that Standard Chartered bank violated rules designed to uphold sanctions against Iran. Ethics matter, and our 2012 Good Company Index better reflects their importance.
Another change to the index holds corporations to a more rigorous standard with respect to taxes. Our initial index examined use of tax havens by companies as reported by the U.S. Government Accountability Office in 2008. But relying on that report not only carried the risk of outdated information, but also meant examining just one way companies may have shirked their fair share of taxes.
The “Corporate Taxpayers & Corporate Tax Dodgers 2008-10” report from Citizens for Tax Justice & the Institute on Taxation and Economic Policy offers an improved method for assessing companies and their approach to tax fairness. In particular, the report lists major companies that paid no income tax in 2008, 2009, and 2010. We subtracted a point from a company’s Good Steward score if it had two or more years of zero income tax payments in that three-year period. We recognize that use of tax havens and other schemes for avoiding U.S. taxes may be perfectly legal. But the public has shown decreasing patience for companies that take advantage of loophole after loophole to avoid paying a “fair share” of taxes, especially when the United States and other countries are struggling with significant public deficits.
We also dropped an element of our stewardship grade that we believed was fast becoming outdated. The “contribution” section of our index awarded companies points if they systematically gave back to the community in some fashion, and if they did so in a way that used their “core competencies” such that the philanthropy made an optimal impact. We don’t mean to suggest that contributions such as financial gifts and volunteer efforts are no longer important. On the contrary, what’s variously known as “corporate social responsibility,” “corporate giving” and “corporate citizenship” is increasingly a baseline expectation of all large companies today. In fact, most companies have programs along these lines. This is good news. But it also means it is not necessary to reward companies on our Index for making contributions.
Our decision to drop this category had the most significant effect on companies that had earned two full points in the inaugural index for their contribution. This includes Disney. Disney continues to do many good works. But it, like all other companies, has to clear an increasingly high bar.