100 Best Corporate Citizens 2001
Click here to see the full list for 2001. [0]
by Philip Johansson
Last year’s national election debacle has certainly left more than one U.S. citizen wondering what citizenship is worth. In an era of faltering government leadership it is fortunate that a growing number of U.S. corporations are taking their own sense of "citizenship" more seriously. Many companies are going to unusual lengths to address the needs and concerns of their various stakeholders, groups that have a stake in or are impacted by a company’s activities. The best among major public companies – as measured by service to seven stakeholder groups – have made this year’s list of the 100 Best Corporate Citizens.
"Corporate social responsibility is a deeply rooted tradition in our company and an integral part of our character and reputation," said Douglas W. Leatherdale, chairman and CEO of The St. Paul Companies (No. 9), the Minnesota based insurer with more than $7.5 billion in revenues and total assets of $38.9 billion. "We view corporate social responsibility as an asset we continue to nurture and grow. It’s a critical part of how we do business and balances the needs of all our constituents. In the long term, it will benefit our company and its shareholders."
Moving up from No. 85 last year to the top ten this year, the St. Paul gained the top score for "community," one of the seven stakeholder areas considered in this year’s ranking of companies. The company’s stellar score in the area of community stems from its firm commitment to the development of vital communities in the Twin Cities of St. Paul and Minneapolis. For instance, its Leadership Initiatives in Neighborhoods program, now in its 16th year, provides grants to current and emerging leaders to develop their leadership potential. Since 1998, The St. Paul has pledged more than $2.2 million to develop an ambitious vision to increase the number of teachers of color in Twin Cities urban schools, enhance the retention of talented educators, and better prepare teachers for urban classrooms. St. Paul employee committees are empowered to make grant making recommendations in the communities where they live and work. And The St. Paul’s arts and diversity committee collaborates with United Arts, a local nonprofit organization, on local arts programming related to various cultures, perspectives, and diversity issues.
"Increasingly, companies and employees are caring about their communities and want to be part of a greater cause," said Leatherdale. "They want to do the right thing. As hard as that may be to define at times, the right thing usually involves making decisions and taking positive actions that make life better for everyone." In short, it means being a good corporate citizen.
Business Ethics first introduced a ranking of the 100 Best Corporate Citizens in 1996, using data gathered in-house by our own researchers. We returned to the list in the year 2000 with a new methodology, using the database compiled by the leading social research firm, Kinder, Lydenberg, Domini and Co. (KLD). Boston based KLD collects and synthesizes data on a wide array of stakeholder related topics for over 650 top public U.S. companies, and provides the background research for the Domini 400 Social Index. KLD data was statistically analyzed by Sandra Waddock and Samuel Graves at Boston College.
While last year’s list incorporated data from four stakeholder groups, this year’s ranking incorporates seven stakeholder groups into a single index. It includes a stockholder performance measure of total return for the three year period 1997-1999. The other six stakeholder groups are local communities, minorities, employees, global stakeholders, customers, and the environment.
High Five
This year’s change in methodology, and of course a year’s more data, resulted in a substantial reshuffling of companies. Thirty-one companies fell off the list altogether, including Anheuser-Busch, Campbell Soup, Coca-Cola, Knight Ridder, Times Mirror, Washington Post Co., and Wal-Mart. Among the companies new to the list are Freddie Mac (No. 10), Corning (No. 31), Apple Computer (No. 32), McDonald’s (No. 78), Dow Jones (No. 79), and Eastman Kodak (No. 82). Companies advancing included Polaroid (No. 8), moving up from No. 37 last year.
No. 1 for 2001 is Procter and Gamble, which moved up from No. 4 last year. P&G scored especially high in service to international stakeholders, where it tied for highest score with State Street Corp. (No. 12), HB Fuller (No. 15), Avon Products (No. 20), and Starbucks (No. 24).
P&G markets 300 brands to nearly 5 billion consumers in 140 countries, with approximately 50 percent of revenues coming from overseas. The consumer products giant has 93 manufacturing facilities in 44 countries outside the U.S., and has been generous in international grants and gifts in these communities, including earthquake relief in Turkey, community building projects in Japan, plus contributions for schools in China, school computers in Romania, special education in Malaysia, and shore protection in France.
P&G’s Achilles heel is that the company has been a frequent target of animal rights activists for using animal testing in the development of products. In an effort to calm the criticism, in 1999 the company announced it would end the use of animal tests for all current beauty, fabric, and home care products, except where required by law. But animal rights advocates, such as People for the Ethical Treatment of Animals (PETA), remain concerned that raw ingredients and products being developed are exempt from the test ban. P&G will remain under their scrutiny until it adheres to animal alternatives such as cell cultures for all phases of product testing.
Coming in a strong second was Hewlett-Packard. Its stakeholder service included generous support of community development and education, amounting to $58 million in 1999, and an extremely employee-friendly work environment. HP offers employees profit sharing representing 12 percent of pretax profits, provides a stunning 52 weeks maternity leave, and was the only large computer company to avoid large scale layoffs through the 1990s. But HP really shines in the area of diversity. Three women serve among the company’s seven senior line executives, including Carly Fiorina, president and CEO of HP since 1999. The company has been commended for its high percentage of women in highly paid positions, the result of a program in which women and minorities in midlevel management are provided with special mentorship opportunities. Fiorina’s eye popping compensation package of $93.8 million in 1999, one of the highest in the country, is a concern. But the fact that she returned part of her bonus in 2000 after the company missed earnings goals provides some reassurance.
Third ranked Fannie Mae may have an edge over other companies in the area of corporate citizenship, having been chartered by Congress to make homeownership available to a broader range of people. Since 1968, Fannie Mae has provided $2.9 trillion in mortgage financing for over 35 million families, many of them minorities or moderate income families that could not otherwise have afforded a home. An inquiry by the U.S. Department of Housing and Urban Development (HUD) last year surprised many observers by suggesting Fannie Mae was not doing enough to promote homeownership of minorities in low income neighborhoods. And some critics argue that government subsidies such as tax breaks give the company a competitive edge in the financial market, but the company insists these benefits are passed on to customers.
Fannie Mae scores high in the areas of community and diversity, and has been ranked near the top of everyone’s "best" list, including Fortune’s "Best Companies for Minorities," Working Mother’s "Best Companies for Working Mothers," and The American Benefactor’s "America’s Most Generous Companies." Franklin D. Raines, an African-American, is CEO, and there are two women and two minorities among the companies eight senior line executives.
Among the top five corporate citizens, Motorola (No. 4) was another company also coming in a top scorer in one stakeholder area, in this case customers. It tied for top score in this area with Tellabs (No. 35). With sales of $31 billion in 1999, Motorola spent $3.44 billion on research and development, or 11 percent of revenues, making it one of the largest R&D investors among U.S. corporations. This communications and embedded-electronics giant is known for making large, long term bets on emerging technologies, such as its substantial investment in Iridium, a satellite communications project. The firm has had a total quality management program in place since the 1980s, and has often received product awards.
Recent lawsuits have alleged that Motorola’s cellular phones caused or aggravated brain cancer, but some research casts doubt on these allegations. Also, like many other technology companies on the list, Motorola has some troubling involvement in military contracts, including nuclear weapon related products such as missile guidance systems. In 1998, Motorola was the 52nd largest defense contractor in the U.S., with $240 million in contracts with the Department of Defense. On the other hand, Motorola has been a leader among companies renouncing further activities related to antipersonnel mine production.
Top Dogs
While Motorola is the top contender in the area of product quality and innovation, Herman Miller (No. 7) brought in the top ranking for employee relations. The Zeeland, Michigan based furniture manufacturer gained high marks for its employee friendly corporate culture, including employee ownership of a large fraction of the company (17 percent in 1998) and retirement benefits worth waiting around for. Herman Miller’s tradition of participative management and employee appreciation can be traced back to the company’s founder, D.J. DePree, who pioneered an innovative corporate culture in 1923.
"We’ve led the way in creating policies described by others as "progressive,’" said Andrew Lock, v.p. of human resources, "including employee recognition programs, gainsharing, employee stock ownership, adoption benefits, health facilities, stock options, and more. Those kinds of programs reflect our belief in the dignity and value of each individual and their right and responsibility to participate fully in the success and growth of the business."
Herman Miller also scored high in the environment area, making significant gains in materials recycling in the production process and conserving energy. In 1998 the company introduced an office chair made from 70 percent recycled materials and itself 100 percent recyclable. Herman Miller hosts an annual environmental conference for employees, customers, and the public, as well as a supplier conference where best environmental practices are shared.
At the top of the list in the diversity category is Computer Associates International (No. 39), a leading provider of e business software, which does all the right things in terms of hiring and promoting minorities and women. Founder and chairman Charles Wang, a Chinese-American, recently handed over the job of CEO to Sanjay Kumar, a Sri Lankan-American. In 1999 six of the company’s 25 highest paid officers were minorities, as were 14 of its officials and managers. One woman and two minorities sit on the board of directors. The company has generous family benefits and has extended all spousal benefits to domestic partners of gay and lesbian employees for the past five years. In 1998 Computerworld magazine named Computer Associates the top ranked place for women and minorities to work in information systems.
The Gillette Company (No. 56) makes a splash in the area of the environment, where it earned the highest score for its proactive approach to environmental restoration. "Protecting the environment is part of Gillette’s mission and values," said Dr. A. Wallace Hayes, v.p. corporate product integrity. "In 2000, we extended our environmental commitment beyond our facilities with an innovative public private program to restore America’s valuable wetlands, the Corporate Wetlands Restoration Partnership (CWRP)."
Gillette founded the CWRP in Massachusetts in 1999, in partnership with state and federal agencies, to help restore vital wetlands damaged by development and pollution. To date, more than 20 companies have contributed over $1 million in funds and services to the Massachusetts partnership, which has nearly completed the restoration of the Sagamore Salt Marsh. The expansion of the partnership to a nationwide initiative, with Gillette as national corporate chair, stands to make a significant impact. The company is also a participant in the pilot EPA Environmental Leadership Program, still another sign of the company’s willingness to go beyond its own impact in addressing environmental problems.
A special mention goes to Dell Computer Corporation (No. 42) for the highest score in the area of financial returns for stockholders. Vying for domination in the lucrative computer market, with a healthy $33 billion in annual revenues, Dell averaged a mouth watering 168 percent return over the three years 1997 1999. The company also scored high in the area of community, where its philanthropic efforts in Texas and Tennessee are legendary, though a compensation package for CEO Michael Dell valued at approximately $109 million in 1999 leaves one wondering if they couldn’t contribute even more.
Missing or Wounded
This year’s booby prize goes to IBM (No. 5), which dropped from its top position last year largely due to its mishandling of the change from a defined benefit to a cash balance pension plan, which drew widespread employee outrage. The switch cost some older employees as much as 50 percent of their pension, while it saved the company an estimated $200 million. The company did agree to offer more employees a choice of plan, but the unpopular move is still a blot upon IBM’s otherwise positive leadership in the area of employee relations.
Perhaps as telling as the companies that topped the 100 Best Corporate Citizens are the ones that don’t show up on the list at all. While the list is rife with financial companies, high-tech icons, and consumer products, there is nary one auto manufacturer or petroleum company. Transportation companies are represented only by Southwest Airlines (No. 28), with its admirable employee relations efforts, and Alaska Airgroup (No. 91). It may go without saying, but the social and environmental impacts of some products are hard to overcome.
To many observers, "corporate responsibility" is an oxymoron, like "bittersweet" or "pretty ugly." Today’s multinational corporations have such an overwhelming impact on our lives, our communities, and our environment, they are often portrayed as villains, with their only focus on the bottom line. Although some corporations may deserve that unsavory reputation, this year’s list of the 100 Best Corporate Citizens leaves significant room for optimism.
Andrew Lock at Herman Miller said it well. "Societal and market forces will increasingly require companies to behave more responsibly, or risk failure, and we think that is a good thing."
Article by Philip Johansson. Statistical analysis by Sandra Waddock and Samuel Graves. Social data from Kinder, Lydenberg, Domini & Company.