Making the best of lists

There are worthwhile reasons to assemble “most ethical” lists, but branding isn’t one of them.

It’s spring so the award season has begun. From the Oscars to the Junos to the Canadian Community Newspaper Awards, everyone wants to be recognized by their peers. There are lots of ethics-related awards as well, such as the World’s Most Ethical Companies, the Responsible Business Awards, the Best 50 Corporate Citizens in Canada, and the BBB Business Ethics Award. I tend to be cynical about awards, so it’s worth asking if the ethics awards serve a worthwhile purpose and whether they raise any ethical issues of their own.

Corporate ethics is hard to measure. You watch a film before you judge it, but how do you assess the ethics of a corporation? We often hear about a failure of ethics, but the absence of scandal may be more about the luck of not being found out than an indication of good ethical governance. After all, Volkswagen used to have a reputation as a good corporate citizen.

There are boxes you can tick, such as whether the company has a whistleblower process, but it’s a lot harder to determine what happens to those reported concerns — are they taken seriously, is the employee’s confidentiality respected, are changes made where appropriate? And any company can have a values statement — check out Enron’s if you need a chuckle.

Organizations that put together “top 100” lists of ethical companies use one of two methods or a combination. They can research publicly available data, but it tells only a small part of the story and is heavily influenced by the criteria selected. For example, Corporate Knights magazine, which compiles the Best 50 Corporate Citizens in Canada, should be commended for transparently listing its criteria on its website. But many would question some of its measures, such as cash tax as a percentage of EBITDA or CEO pay as a multiple of the average worker’s salary. While paying your tax and not overpaying your CEO are good things for a company to do, those tests are obviously simplistic.

The other method of ranking a company’s ethics is to ask it to self-report on a number of different dimensions. The difficulty is that this becomes a public relations exercise, handed over to the marketing department. What gets reported are such things as employee ethics training, values statements, sustain- ability initiatives and other worthwhile efforts. But no one would self-report awkward facts such as work outsourced to dangerous factories in the Third World.

We can also question the cosy relationship between the companies winning the awards, the organizations selecting the winners and the media that publish the results. Many of the lists are put together by for-profit consulting companies that presumably see a benefit to their consulting businesses in exchange for their efforts. For example, the Ethisphere Institute, which assembles Forbes’ World’s Most Ethical Companies list, is a for-profit that earns revenue through consulting, selling ads in its publications, charging fees to belong to groups it assembles, charging winners to use its logo, and so on. Companies that want to get on the list to burnish their brands as ethical companies will seriously review what they pay to Ethisphere (at EY we always thought about buying some consulting services from the sponsor when going after Best Employer awards). There is at least the appearance of conflict of interest.

The media that publish “best” lists are part of the cosy family. They don’t have any responsibility to verify the results, which are outsourced to consulting firms, so at little cost to them, they fill their pages with these popular articles that sell ads.

There are worthwhile reasons to assemble “most ethical” lists. They celebrate the importance of business ethics, and they may cause companies seeking to be on the lists to take ethics more seriously or to think twice before undertaking actions that could damage their reputation. Getting public recognition may convince doubting executives that the costs are worth the effort. But if ethics is only a branding opportunity, we’ve missed the point.