New 2014 Grades!

Good companies outperform in the stock market


We originally assigned Good Company Index grades to Fortune 100 companies in June 2010 (those grades were reported as the 2011 Good Company Index, reflecting the year in which our book was published). As we did last year on the one-year anniversary of the Index, this year we again examined all “industry-matched pairs” (two companies in the same industry) in the Fortune 100 in which the companies’ Good Company grades differed by one or more full grade levels (for example, a grade of B versus a grade of C).

Those companies with higher Good Company grades significantly outperformed their competitors in the first year and then further extended that outperformance in the second year. The stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 30.2 percentage points cumulatively over the 2-year period (see figure below).

In addition, we found that in 83 percent of the pairs (10 of 12), the higher-ranked company outperformed the other over the 24-month period. For example, the stock value of Verizon (grade of C+ in June 2010) outperformed AT&T (grade of D+) by 21.7 percentage points during that period, 76.5 percent to 54.8 percent.


Consistently good companies


Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”

Although Disney’s grade dropped, other Fortune 100 companies repeated strong performances on the Good Company Index™. In particular, FedEx, Procter & Gamble, American Express, Intel, Cisco Systems, United Parcel Service, and Best Buy all earned at least a solid B on both the 2011 and 2012 editions of the index (see table below).

Procter & Gamble stands out as a particularly worthy company, having achieved a B+ in both years. As with Time Warner, it had a neutral mark with respect to customers. But the consumer products giant earned high marks as an employer thanks to a rating of 3.8 of 5. P&G also made a solid showing as a steward, with a high score on the Newsweek Green Rankings and membership in the Dow Jones Sustainability North America Index.

FedEx slipped some from an A- to a B. This was a rare year that the shipping specialist did not make the Fortune Best Companies to Work For list, which cost it a point in our scoring system. But FedEx did rate highly enough with employees at to earn one point as a Good Employer. It also stood out for good customer service at wRatings. And with a variety of environmental initiatives, a number of which we discussed in Good Company, FedEx scored highly on the Newsweek Green Rankings.

Apple bears special mention. Although it didn’t earn a solid B in both years of the index (it had a B- last year), it was one of the top three index performers this year along with Time Warner and P&G. Apple earned a B+, on the strength of a top good seller score, a high Newsweek Green Ranking, and lofty employee ratings at Only a demerit for giving CEO Tim Cook the largest pay package of any company in the rankings prevented Apple from earning an A- grade.

Apple clearly has delighted customers with innovative products and services such as the iPad, FaceTime and Siri. But we find ourselves a bit troubled with the company’s high rating as an employer given evidence in recent years of less-than-decent treatment of Apple’s extended workforce in overseas factories run by partners. We have yet to find a reliable, comprehensive source of data on companies’ outsourced workers to include in our index calculations, though. Lacking such a data source, we can only rely on the enthusiasm direct employees have for Apple. And we also trust that the “technology-fueled people power” we discussed in Good Company—forces such as social media tools and a culture of personal disclosure—will continue to push Apple to improve the treatment of workers in its supply chain.

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.

New Good Company rankings: a quick look at Disney


Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”

As Time Warner has gone to the head of the class, Disney has moved back to the middle of the pack. The entertainment giant, our top-ranked company in 2011, saw its Good Company Index™ grade fall from an A, the top score in the inaugural ranking, to a C+. Disney’s performance as an employer continued to be solid, but its rating as a seller slipped and its marks as a steward dropped dramatically. For instance, it didn’t earn any points in our new categories of political accountability and ethics.

Disney was also dinged for excessive CEO pay. We consider extravagant CEO pay to be a sign of lack of restraint and against the spirit of good corporate stewardship. According to a New York Times study of top executive compensation, Disney CEO Robert Iger raked in $31.4 million in 2011—placing him in the top 5 among CEOs in the Fortune 100 firms we ranked. (As it happens, Disney had flirted with losing a point on our inaugural Good Company Index for its CEO pay: it ranked sixth, with Iger’s 2009 compensation of $21.6 million coming in just behind the $21.9 million pay of fifth ranked Abbott Laboratories CEO Miles White.)

We do not mean to declare that Disney has gone from being a “good” company to a “bad” one. But the firm that claims to operate the “happiest place on earth” appears to have work to do to make all of its stakeholders happy.

A new best company: Time Warner Corp.


Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”

It’s Time Warner’s time at the top. The media company stands alone at the pinnacle of the 2012 Good Company Index. It earned a grade of A-, the only A grade earned by any of the Fortune 100 companies this year. Although Time Warner had a middle-of-the-road score as a seller, it earned positive marks as an employer and had particularly strong results as a steward of communities and the planet.

As a traditional media company trying to reshape itself to serve audiences that are increasingly online and mobile, Time Warner has faced challenges in recent years. CEO Jeffrey Bewkes has streamlined operations, cutting some jobs along the way. But Bewkes has shown he is willing to bear some of the cost-cutting as well. He told the New York Times he was willing to give up his office with a coveted view of Manhattan’s Central Park, calling Time Warner’s corporate headquarters near the park an “indulgence.”

And employees overall believe the company to be a decent one to work for. Time Warner’s score at employee feedback site was 3.4 out of 5, placing it in the top quarter of Fortune 100 companies we ranked. One employee posting at Glassdoor called Time Warner a “Great place to work,” adding that “management seems to know what it’s doing and communicates that message well with employees at the company. Benefits are strong.”

Another sign of Time Warner’s worthiness as an employer can be seen in the company’s new chief of the Time Inc. magazine division, Laura Lang. A recent New York Times profile indicates she embodies key traits of good leadership: setting a smart digital strategy to reverse declining operating income and revenue, avoiding major layoffs, and communicating extensively with employees in a series of meetings in offices throughout the country and in London. “The point of the process was to say we’re not going away in a room and shutting the door and whispering,” Lang told the New York Times.

That same spirit of transparency helped Time Warner earn high marks as a steward. The company ranked in the top tier of organizations on the CPA-Zicklin Index of Corporate Political Accountability and Disclosure. Time Warner also earned points as a Good Steward for its inclusion on the Ethisphere Institute’s list of the World’s Most Ethical Companies and the Dow Jones Sustainability North America Index, as well as its high score on the Newsweek ranking of companies’ environmental performance.

Significantly, Time Warner didn’t lose any points for running afoul of the law in the last five years (the period included in our ratings). In our first Good Company Index, Time Warner scored a B-, its score negatively affected by a 2005 incident in which it agreed to pay $300 million to settle fraud charges by the U.S. Securities and Exchange Commission. Among other allegations, the SEC said Time Warner overstated online advertising revenue and the number of its Internet subscribers. We did not turn up significant penalties or fines against the company since then, indicating it has played by the rules—a fundamental feature of a good steward.