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Business Ethics Magazine Releases Its 2006 “100 Best Corporate Citizens” Survey

The U.S. based Business Ethics Magazine has released its annual survey of the “100 Best Corporate Citizens” in its quarterly Spring 2006 Issue. Of the top 10 firms on the list, 7 of these are technology firms, which Majorie Kelly, Editor of Business Ethics attributes to the industry's proclivity towards sound environmental policies, high community involvement, and good employee relations. According to Kelly, these tendencies may be a function of their ability and interest in attracting and retaining highly talented individuals.

The list puts a numerical rating on performance in eight stakeholders categories: shareholders, community, governance, diversity, employees, environment, human rights, and product. According to Business Ethics Magazines press release: “Environmental, social and governance ratings are drawn from Socrates (TM), the online research database created by KLD Research and Analytics, Inc. in Boston, an independent research firm serving investment management professionals….

The universe of companies considered for the list encompasses U.S. firms in the Russell 1000, the S&P 500 and KLD’s Domini Social Index….Social scores use KLD’s assessment of “strengths” and “concerns” demonstrated in each category. The shareholder score is based on three-year average total return (stock appreciation plus dividends) through year-end 2005.”

The Top 10 Corporate Citizens:

1. Green Mountain Coffee Roasters Inc.
2. Hewlett-Packard Company
3. Advanced Micro Devices, Inc.
4. Motorola, Inc.
5. Agilent Technologies, Inc.
6. Timberland Company (The)
7. Salesforce.com, Inc.
8. Cisco Systems, Inc.
9. Dell Inc.
10. Texas Instruments Incorporated

The full list can be viewed on the Business Ethics website by following this link.

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“2006 Corporate Governance and Climate Change: Making the Connection.”

A new report from CERES

“…leading companies in many key industries are now tackling the issue [of climate change] at the highest level, with boards conducting strategic assessments and management setting performance goals for reducing greenhouse gas emissions and developing new climate-friendly products.”

However, many companies continue to ignore the issue as “low climate governance scores also were prevalent among entire sectors, including: coal companies, which are especially vulnerable to greenhouse gas regulations; food and forest product companies, which are vulnerable to natural resource impacts from climate change; and airlines, one of the fastest growing sources of CO2 emissions.”


These are just some of the finding of a first-ever report by Ceres, a US-based coalition of environmental groups and investment funds, entitled, “2006 Corporate Governance and Climate Change: Making the Connection.” The study, which assessed how 100 leading companies (76 U.S. and 24 non-U.S. in 10 business sectors) are tackling the growing financial risks and opportunities arising from climate change (which range from expanding greenhouse gas regulations to direct physical impacts to surging demand for climate-friendly technologies), shows significant improvements from a similar 2003 Ceres survey.

"More U.S. companies realize that climate change is an enormous business issue that they need to manage immediately," said Mindy S. Lubber, president of Ceres, “Investor pressure, expanding greenhouse gas limits and surging global demand for clean-energy products are compelling U.S. businesses to act, although many others still fail to recognize the enormity of this issue. Ultimately, management and board members at all 100 of these companies need to make climate a top governance priority."

The nine-month study drew from securities filings data, company reports, company websites, third-party questionnaires and direct company communications. It used a "Climate Governance Checklist," which covers five broad areas of corporate action: board oversight, management performance, public disclosure, greenhouse gas emissions, accounting and strategic planning, to assess company performance.

Using a 100-point scoring system, the report ranked the largest companies in the oil/gas, electric power, auto, chemical, industrial equipment, mining/metals, coal, food products, forest products and air transportation sectors, with operations in the United States. Those companies with a sustained commitment to controlling greenhouse gas emissions, disclosing data and strategies, supporting regulatory actions, and taking practical, near-term steps to find lasting solutions to climate change, received the highest scores.

Foreign companies led in five of the nine sectors (which excluded electric power) which included both U.S. and non-U.S. companies, while American companies led in the other four.

Among the industry sector leaders and laggards:


Sector

Leaders

Laggards

Oil/Gas

BP (90 points*)

ExxonMobil (35)

Chemical

DuPont (85**)

PPG (21)

Metals/Mining

Alcan (77) & Alcoa (74)

Newmont (24)

Electric Power

AEP & Cinergy (both 73)

Sempra Energy (24)

Auto

Toyota (65)

Nissan (33)

* Top score among the 100 companies
**Top score among 76 U.S. companies

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CSR’s Rising Importance

Executives Say They Face a Host of Worries About Society's Expectations of Their Companies, Which Can—and Must—Do Better

The McKinsey Global Survey of Business Executives : Business and Society, January 2006

Executives around the world overwhelmingly embrace the idea that the role of corporations in society goes far beyond simply meeting obligations to shareholders, according to the latest McKinsey Quarterly global survey. 

But executives also say that, for most companies, sociopolitical issues—such as environmental concerns and the effects of offshoring—present real risks. Indeed, finding ways to control them is so important, the executives say, that the effective management of sociopolitical concerns must start with the CEO.  Executives are far less certain, however, that corporations adequately anticipate which sociopolitical concerns will affect them. These executives also believe that the tactics—lobbying and public relations, for example—companies now use to meet such concerns are not the most effective ones. In addition, they think that the public will expect corporations to take on a significant role in handling the new pressures.

Some Findings From This Report:

  • Business executives across the world overwhelmingly believe that corporations should balance their obligation to shareholders with explicit contributions "to the broader public good." Yet most executives view their engagement with the corporate social contract as a risk, not an opportunity, and frankly admit that they are ineffective at managing this wider social and political issue. Our findings highlight some of the key issues that businesspeople expect stakeholders, social and consumer activists, and the media to raise during the next five years. The responses provide striking evidence of the way environmental concerns, doubts about data privacy, the controversy around offshoring, and other sociopolitical matters have firmly inserted themselves into the day-to-day agenda of the executive suite.

  • More than four out of five respondents agree that generating high returns for investors should be accompanied by broader contributions to the public good—for example, providing good jobs, making philanthropic donations, and going beyond legal requirements to minimize pollution and other negative effects of business. Only one in six agrees with the thesis, famously advanced by Nobel laureate Milton Friedman, that high returns should be a corporation's sole focus.


Reputational Risks

Many respondents stress the risks to the reputation of companies, as well as the potential for damaging their shareholder value, when they are expected to address social and political concerns. Across most sectors—notably consumer-facing ones—nearly three in ten respondents say that the media or interest groups have criticized corporations in their industries for "failing to meet social responsibilities generally expected of them but not required by law."  Executives believe that the solution lies in their own hands. Asked how adequately the respondents' companies anticipate social pressure—including criticism of their activities—46 percent say that they have "substantial room for improvement," and a further 24 percent admit to seeing "some room." Only 3 percent report that their companies are doing a "good job."

Is this just PR?

The choice of tactics is also an issue in assigning leadership. Asked who actually takes the lead in trying to manage the sociopolitical agenda of their companies, more than half of our respondents point to the chair or chief executive. A further 14 percent report that the public- or corporate-affairs department typically holds the reins. When asked who should take the lead, however, almost three-quarters opt for the chair-CEO and a mere 4 percent for the public- or corporate-affairs department. Judging by our survey, executives are hard-nosed about why companies are engaging in this new agenda. Only 8 percent think that large corporations champion social or environmental causes out of "genuine concern." Almost nine in ten agree that they are motivated by public relations or profitability, or by both concern and business benefits in equal measure.

Upcoming Key Issues

Looking ahead, executives expect that a wide range of concerns will dominate public and political debates. Asked which three issues will have the most impact, for better or worse, on the shareholder value of companies in their industries during the next five years, 41 percent choose job loss and offshoring. Also at the top of many minds are corporate political influence and involvement; environmental issues, including climate change; pension and retirement benefits; and privacy and data security. Surprisingly, perhaps, human-rights standards—a cause long championed by nongovernmental organizations—barely register as a concern. Among notable regional and industry differences, 47 per-cent of the respondents in North America mention health care and other employee benefits, while 39 percent of banking and finance executives point to privacy and data security.

Pharmaceuticals Looks Good

With executives generally positive about the wider social role business plays, which specific industries make the greatest overall contribution to the public good? Health care, mentioned by 49 percent of the respondents, tops all other sectors by a notable margin.  Despite the high-profile attacks of some interest groups, the pharmaceutical sector (buoyed particularly by North American support) also does well. More than a quarter of the respondents cite either agriculture, especially valued in China and India, though less so in Europe, or telecommunications, notably popular in developing countries, including China.

Such optimism is encouraging, since there is no sign that the new pressures on business will go away. According to the survey, 20 percent of the respondents believe that the public will expect companies to take on most of the added responsibility for handling social and political issues, while an additional 59 percent think the burden will fall equally on governments and companies.

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Corporate Responsibility & Emerging Economies

“Responsible Competitiveness is the precondition for an acceptable, viable globalization that aligns the extension of business opportunities and roles in development with reductions in poverty and inequality, and environmental security.”

A new report from AccountAbility (UK), which includes a National Corporate Responsibility Index (Nordic countries outperform the rest of the world, Pakistan comes last in 80 countries ranked).

Exploring Responsible Competitiveness
AccountAbility noted that it has joined with the United Nations Global Compact and a network of research institutes, business schools and civil society organisations to explore how responsible business practices can most effectively become an embedded feature of global markets. It said its findings in the new report are grounded in concepts, cases and statistics, including the latest Responsible Competitiveness Index (RCI) covering over 80 countries. The Report concludes
with proposals for advancing the practice of Responsible Competitiveness.

Profiling Responsible Competitiveness:The Challenge
All nations, states the Report, regions and communities share the three-part development goal of satisfying the needs of their citizens; playing their part in securing broader global public goods including civil and environmental security and basic human rights; and generating economic development. Realising this goal requires markets and regulation that create a ‘race to the top’ of escalating productivity, human development and environmental responsibility. The potential exists for such a positive relationship, but a competition-driven ‘race to the bottom’ remains a very real possibility. The facts of pervasive poverty and inequality suggests that the ‘trickle down’ of undirected economic growth will not deliver sustainable development on its own. What is required is a more responsible form of competitiveness.

Corporate Responsibility Constrained
Business leaders increasingly recognise the need to act responsibly, says AccountAbility. This is exemplified by the growth in adoption of the UN Global Compact’s 10 Principles, and the business community’s engagement in addressing the UN Millennium Development Goals. But individual businesses cannot go against the grain of the market. Being responsible sometimes does and sometimes does not pay. As with anything in business, success depends on a combination of good ideas, skills, luck and circumstance. While the growing significance of intangible assets has created opportunities for leveraging responsible business practices, the intensification of competition and the short-termism of investors constrain such practices.

Some Key Findings of the report include:

1. Access for developing nations to the markets of developed countries is increasingly linked to compliance with labor and environmental standards. Industries and nations around the world are improving their social and environmental performance with the specific intention of competing in developed markets and/or establishing a competitive edge.

2. Korea (28), Malaysia (30), Thailand (32), The Philippines (42) and India (43) are among the most corporately responsible emerging economies, according to the National Corporate Responsibility Index (NCRI).

3. Responsible business practices may well be a driver of national competitiveness, according to the Responsible Competitiveness Index, also included in this report. The index measures the impact of corporate responsibility on national competitiveness by adding the results of the National Corporate Responsibility Index as a new variable to the World Economic Forum’s Growth Competitiveness Index. Again the Nordic countries dominate the top of the list, suggesting that they are maintaining sustainable economic growth based on responsible business practices. More generally, Europe goes up the competitiveness ladder once corporate responsibility is taken into account, whilst several countries, including China and Japan see significant "falls" in their relative competitiveness levels.

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The Fortune Global 100 Accountability List

Published September 22, 2005


The Fortune Global 100 Accountability List shows US companies lagging behind their European and Asian competitors in managing and reporting their environmental and social impact. Simon Zadek, chief executive of a UK-based group called AccountAbility, commented that one reason US companies may lag behind their European counterparts is that American companies tend to only disclose and audit according to the law and do not report anything if it is not required. Zadek sees companies like Ford and Chevron as leaders who are "stepping up to the mark on some of these issues" but points out that more progress in necessary considering that the overall average score for companies was an abysmal 32 out of 100. One notable improvement was HSBC whose commitment to using the World Bank's Equator Principles to guide lending to dam and forestry projects as well as its use of AccountAbility's AA1000 standard to asses its governance structure helped the company jump from 45th place to 4th place. See the Fortune Magazine for the full list and the Financial Times for comments on the list. See also the AccountAbility website where more information on its AA1000 standard can be found.

The Top 5 Most Accountable Companies

  • 2005 rank* * Company Global 100
    rank
    Accountability
    score
    Sector Region
    1   BP 1 78 Oil, Chemicals Europe
    2   Royal Dutch Shell 4 72 Oil, Chemicals Europe
    3   Vodafone 53 71 Utilities, telecoms, other services Europe
    4   HSBC Holdings 36 63 Financial services Europe
    5   Carrefour 22 60 Trading and merchandise Europe


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Global Corporate Survey Raises Key Ethics Issues

Ethical Investment research Services (EIRIS) in the U.K. warns of bribery concerns in two key sectors: oil & gas, and aerospace & defense. In a September 28, 2005 reportEIRIS stated in a new report that these two sectors are judged to be most exposed to risk from bribery and corruption. According to a survey of company practices at 2,400 companies, EIRIS found that just under 24% appear to have declared policies on whistle-blowing, bribery, political donations and compliance monitoring.

Of the 23 countries analysed, Hong Kong and Singapore were found to have the fewest companies with high standards of corporate codes of ethics. Dutch companies scored highest on the quality of their over-all corporate codes of ethics - over 86% of companies have meaningful ethical codes, and almost 73% of companies based in the Netherlands have polices judged by EIRIS as ‘advanced’.

Oil and Defense Companies Lack Systems to Counter Bribery and Corruption

“More and more companies are operating in environments where political and economic systems are weak and the potential for corruption is great,” said report author and EIRIS research analyst Danielle Mallen. “Investors are increasingly interested in how companies respond to the challenges raised by operating in such places. EIRIS is pleased to provide a further dimension to the
evaluation of corporate governance on behalf of investors.”

Other key findings in the paper include the following:

• After Singapore and Hong Kong, companies in Spain are least likely to have ethical codes, and Singapore, Hong Kong, Greece, Spain, Ireland and Portugal lag behind when it comes to governance ethics management systems.
• Over half (54%) of the companies assessed have a meaningful governance ethics code or equivalent policy.
• A higher percentage (67%) have a governance ethics management system, but overall management systems appear to be less developed than the policies.
• Over 78% of UK larger cap companies have meaningful ethical codes, although this figure drops to around 31% once the sample is expanded to cover all medium and smaller cap companies (the FTSE All-Share index).
• The Netherlands and the UK are also ahead of other major economies in relation to the quality of their governance ethics management systems.
• Others with relatively high percentages of their leading companies having ethical codes include the USA, Australia, New Zealand and the Nordic countries.

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Business for Social Responsibility (BSR) Reports on Ethics and Canadian Mining Companies

BSR notes a report by Canadian socially responsible investment firm The Ethical Funds Co. that finds that only four Canadian extractives firms ( Alcan Inc., Enbridge Inc., Nexen Inc. and Talisman Energy Inc.) are adequately addressing legal, financial and reputational risks of operating in countries where human rights abuses occur. According to SocialFunds, Ethical Funds assessed 152 countries on their level of human rights risk. Nine countries, including Burma and Colombia, were deemed "extreme risk" and 25 countries, including China, Indonesia and Nigeria, were deemed "high risk." Ethical Funds then surveyed extractive firms on the S&P/TSX Composite Index and found that 24 Canadian firms operate in six extreme risk countries and 11 operate in high risk countries. The report recommends that firms doing so establish a human rights policy along with management mechanisms to implement the policy. Other recommendations include adopting the Voluntary Principles on Security and Human Rights and the Extractive Industry Transparency Initiative, which requires firms to disclose royalty and tax payments to host governments. The full report -- entitled "Canadian Energy and Mining Companies: Navigating International Humanitarian Law in the 21st Century" -- is available at www.ethicalfunds.com

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