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Q2 / 2007 // ETHISPHERE 019www.ethisphere.com

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Ethisphere Magazine recognizes and rewards ethical leadership

and business practices worldwide

RANKING

Q2 / 2007 // ETHISPHERE 019

020 ETHISPHERE // Q2 / 2007 www.ethisphere.com

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The absolutes are the necessary grounding for a company to have strong core values to build upon. The context is the environment in which a company operates, both geographically as well as industrially.

The best lens through which to view a company’s ethical leadership behavior is to examine a company compared to other companies in the same industry. Are they leading, are they following, or are they ignoring? And to be a leader, the company needs to have or build a com-petitive edge, such as size or technology, which allows it to be infl uential.

In assembling the 2007 rankings of the World’s Most Ethical Companies, the researchers and editors of Ethisphere examined more than 5,000 companies across 30 separate industries looking for true ethical leadership.

We looked for absolutes. We exam-ined companies in relational context of their industries. And we looked for infl uential leadership that moved others to change or follow.

Companies were measured in a rigor-ous eight-step process and then scored against nine distinct ethical leadership criteria. Refer to page 21 for more on the methodology or visit www.ethisphere.com/methodology to download the methodology report.

Some may ask, “How can McDonald’s be on the list?” The answer is that the food service industry is the largest industry in the world—and McDonald’s has clearly stood apart in introducing healthier food fare, sustainable packaging, food safety, and ethical purchasing practices.

Ethics are absolute. Business ethics are relational. And ethical leadership requires a position of infl uence.

What does that mean? Certainly there are absolutes to business ethics, such as respecting employees and stakeholders, competing fairly and within the law, and being a responsible corporate citizen.

Companies routinely compete for recognition for their “corporate citizen-ship” or “best place to work” award. And predictably, a select few pharmaceutical companies, a handful of consulting and high-tech fi rms, and a couple of retailers appear near the top of the list.

Those lists are based only upon absolutes.

Not surprisingly, the companies that appear on those lists usually are from high net margin industries that can afford to invest in self-promotion, and may have a more vested interest in the awards than other companies. For example, the consulting fi rm that knows it will help them in the ‘war for talent’; the pharmaceutical company that wants to blunt criticism over patent practices or high prices; or the retailer that wants to attract the higher spending ‘ethical’ demographic shopper.

Yes, many of those companies truly are ‘ethical’—but those industries represent only a minority (less than 20%) of the overall industry of global business, commerce and workforce.

What about the rest of the economy? How can we accurately examine and compare business ethics practices and leadership when we only look at a small portion of the economic landscape?

Frankly, we can’t. We need to look at the relational context.

THE WINNERS OF THE WORLD’S MOST ETHICAL COMPANIES ARE THE STANDOUTS. EACH FORCES OTHER COMPANIES TO FOLLOW ITS LEADERSHIP OR FALL BEHIND. EACH USES ETHICAL LEADERSHIP AS A PROFIT DRIVER.

The winners of the World’s Most Ethical Companies are the standouts. Each of these companies has materially higher scores versus competitors in their industries. Each forces other companies to follow its leadership or fall behind. Each uses ethical leadership as a profi t driver. And each of these companies embodies the true spirit of Ethisphere’s credo: Good. Smart. Business. Profi t.

BUSINESS.Companies that leverage relative positions of infl uence to affect positive industry change.

SMART.Companies that invest in innovation, quality and sustainable business practices that reduce resource consumption in the production or use of their products and/or increase consumer health or safety.

GOOD.Companies that proactively engage with the communities in which they serve, impact, or operate.

ETHISPHERE COUNCIL DEFINITION OF ETHICAL BUSINESS LEADERSHIP[eth-i-kul + lee-der-ship]

PROFIT.Companies that look strategically to profi t fairly from such ethical leadership business practices, as ultimately only profi t ensures continuance of desired institutional behavior.


METHODOLOGYThe World’s Most Ethical Companies—the 2007 Edition

The World’s Most Ethical Companies™ (WME) methodology analyzes companies that go

beyond making statements about doing business ‘ethically’, to translate those words into action.

WME winners demonstrate real and sustained ethical leadership within their industries, putting

the Council’s credo of “Good. Smart. Business. Profi t.” into real business practice.

Steps 1-6 narrowed the candidates to a select few per industry (Award Finalists), which were then notifi ed of their candidacy.

Step 7 consisted of examining outside ethics stakeholders’ reputation and perception of each of the fi nalist companies. This includes sending ethics audit letters to customers and suppliers, and getting input and opinions from nearly two dozens NGOs and Socially Responsible Investment (SRI) fi rms.

The fi nal Step 8 involved analyzing the company’s internal ethics and compliance systems. This involved tapping into Ethisphere’s database of information on thousands of corporations’ compliance and ethics programs, as well as having direct dialogue and surveys with the leadership of Award Finalist organizations. Step 8 is a critically important examination of how effectively each fi nalist company drives an internal cultural commitment to ethics and compliance, and how that commitment may benefi t their business.

Litigation and controversy/confl ict analysis

Ethical tone analysis

Innovation and industry leadership analysis

Corporate citizenship analysis

Pan-industry effort participation analysis

Governance and transparency analysis

Public and trade partner perception analysis

Ethics/compliance programs and systems analysis

STEP

01STEP

02STEP

03STEP

04STEP

05STEP

06STEP

07STEP

08

To gather the necessary information to measure industry leaderships against the nine criteria, Ethisphere researchers and editors screened thousands of companies across the globe through a rigorous, multi-step process. The eight separate and sequential analyses conducted were:

THE EIGHT-STEP PROCESS OF COLLECTING AND SCREENING INFORMATION

Once all the necessary information was collected, the companies were scored relative to industry peers on nine separate criteria. The analysis was segmented into 30 separate industries based on SIC Codes and given weighted scores for the nine criteria shown in the chart.

Within each industry, the companies that had a materially higher aggregate score compared to their competitors were designated as the year’s World’s Most Ethical Companies.

THE FINAL RANKING AND SCORING OF THE WORLD’S MOST ETHICAL COMPANIES

INNOVATION 10%

EXECUTIVELEADERSHIP 10%

INDUSTRYLEADERSHIP 15%

TRANSPARENCY 5%

PERCEPTION& REPUTATION 10%LEGAL &

15% REGULATORY

INTERNAL 15% SYSTEMS

15% CITIZENSHIP

5% GOVERNANCE

More detail on methodology is available at www.ethisphere.com/methodology

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Accor // FRANCE

Marriott // UNITED STATES

Barilla Holding // ITALY

Danone // FRANCE

Kellogg // UNITED STATES

PepsiCo // UNITED STATES

Stonyfi eld Farm

// UNITED STATES

Tnuva // ISRAEL

Fluor // UNITED STATES

Trex // UNITED STATES

Duke Energy // UNITED STATES

FPL Group // UNITED STATES

Scottish & Southern Energy // UNITED KINGDOM

General Electric // UNITED STATES

Koch Industries // UNITED STATES

Tata Group // INDIA

Wesfarmers // AUSTRALIA

Hindustan Lever // INDIA

Kao // JAPAN

L’Oreal // FRANCE

Natura Cosméticos // BRAZIL

S.C. Johnson & Son // UNITED STATES

Unilever // NETHERLANDS

Paychex // UNITED STATES

Pitney Bowes // UNITED STATES

H & M Hennes & Mauritz // SWEDEN

New Balance Athletic Shoe // UNITED STATES

NIKE // UNITED STATES

Patagonia // UNITED STATES

The Gap // UNITED STATES

Timberland // UNITED STATES

RANKING

FOOD & BEVERAGE

HOTEL & HOSPITALITY

COMPUTERS & SEMICONDUCTORS

Akzo Nobel // NETHERLANDS

Ecolab // UNITED STATES

CHEMICALS

AB Volvo // SWEDEN

Johnson Controls // UNITED STATES

Modine Manufacturing // UNITED STATES

Toyota Motor // JAPAN

AUTOMOTIVE

Dunavant Enterprises // UNITED STATES

Dole Foods // UNITED STATES

AGRICULTURAL & FOOD PROCESSING

Canon // JAPAN

Royal Philips Electronics // NETHERLANDS

Sharp // JAPAN

ELECTRONICS

Bright Horizons // UNITED STATES

CONSUMER SERVICES

DIVERSIFIED INDUSTRIES

ENGINEERING & CONSTRUCTION

HSBC // UNITED KINGDOM

Rabobank Group // NETHERLANDS

Standard Chartered Bank // UNITED KINGDOM

BANKING

APPAREL

BUSINESS SERVICES

American Express // UNITED STATES

Berkshire Hathaway // UNITED STATES

PNC Financial Services // UNITED STATES

Principal Financial // UNITED STATES

FINANCIAL SERVICES

ENERGY & UTILITIESCONSUMER PRODUCTS

NEC Corp. // JAPAN

Sun Microsystems // UNITED STATES

Texas Instruments // UNITED STATES

Xerox

// UNITED STATES


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McDonald’s // UNITED STATES

Starbucks // UNITED STATES

Alcoa // UNITED STATES

Baxter International // UNITED STATES

Becton Dickinson // UNITED STATES

Kiplinger // UNITED STATES

Time Warner // UNITED STATES

Caterpillar // UNITED STATES

Danfoss // DENMARK

Deere // UNITED STATES

Eaton // UNITED STATES

Milliken & Company // UNITED STATES

Ethical leadership can and should be profi table. Through recognizing companies that pursue an ethical leadership model, the Ethisphere Council both rewards such behavior and motivates winners and other companies to strive for future recognition.

INDUSTRIAL MANUFACTURING

Genzyme // UNITED STATES

Novartis // SWITZERLAND

Novo Nordisk // DENMARK

PHARMA & BIOTECH

Google // UNITED STATES

Salesforce.com // UNITED STATES

SOFTWARE & INTERNET

United Parcel Service (UPS) // UNITED STATES

TRANSPORTATION & LOGISTICS

MEDICAL DEVICES

International Paper // UNITED STATES

MeadWestvaco // UNITED STATES

Tetra Pak // SWITZERLAND

PAPER & PACKAGING

AFLAC // UNITED STATES

GEICO // UNITED STATES

Swiss Reinsurance Company // SWITZERLAND

INSURANCE

MEDIA & ENTERTAINMENT

METALS & MINING

RESTAURANTS & CAFES

Royal Dutch/Shell // NETHERLANDS

Suncor Energy // CANADA

OIL & GAS TELECOM


RETAIL

AEON // JAPAN

Aldi Group // GERMANY

Costco Wholesale // UNITED STATES

IKEA // SWEDEN

Marks & Spencer // UNITED KINGDOM

Otto GmbH & Co // GERMANY

Target // UNITED STATES

Wegmans Food Markets // UNITED STATES

Whole Foods Market // UNITED STATES

Avaya

// UNITED STATES

Nokia // FINLAND

Vodafone // UNITED KINGDOM


When we spoke to Knight Kiplinger about the company his grandfather started, his pride, dedication and passion was obvious. When Kiplinger speaks

about the ethical culture of the company, he emphasizes that they “go the extra mile for their clients and their employees.” Founder W.M. Kiplinger, a social liberal and economic conservative of the 1920s, believed in communal capitalism within his company and shared his success with his employees by giving company stock to employees, among other great benefi ts.

Like many publishers today, Kiplinger is facing tougher times, but believes that “in the more diffi cult of times, the belt tightening should start at the top rather than at the bottom.” Setting the ethical tone at the top, Kiplinger maintains the idea that “we are all in this together” by freezing executive bonuses instead of cutting jobs. “It’s easy for a company to act generously and ethically during boom times. It’s when diffi cult times come that you see how a company truly is.”

Maintaining trust with non-employee family shareholders is also of great importance to Kiplinger. “Our company is a model of how to deal ethically with family members that don’t work in the business but have a stake within the business,” says Kiplinger. In the midst of maintaining company stability and sustainability, Kiplinger upholds its responsibility to its readers and will oftentimes reject ads that are of little or no value to its readers.

KNIGHT KIPLINGERPresident & Editor-in-Chief

Sandy Cutler, CEO of Eaton Corporation, spoke in great detail about the basic beliefs that make Eaton a value-based com-pany. These core values

have allowed Eaton to maintain a strong foundation and sense of stability during recent internal changes and mergers. Rather than approaching ethics as a compliance issue, Cutler believes, “It’s about doing business right through internal philosophies and customer commitments. We’ll lose business before we will compromise our values.”

Eaton employs 61,000 people in 125 countries, and almost all of their products target helping people and companies effectively use energy. For example, Eaton developed a technology with the EPA for UPS, that allowed the shipping company to save 70% in fuel economy. Additionally, Eaton developed a hybrid electric bus technology for possible use during the Beijing Olympics.

Eaton places high value on contribu-tions in the workplace and community, believing they are key components for doing business right. “People will work where the company and the community involvement values refl ect their own,” insists Cutler. Every employee at Eaton has the opportunity to raise questions if they believe their personal morals are at risk. If a company is committed to doing business ethically, “you can cut the top off and the bottom would keep working,” maintains Cutler.

SANDY CUTLERCEO

Perry Minnis is the Director of Global Ethics & Compliance for Alcoa, a metals and mining company with over 120,000 employees in 44 countries.

Minnis, who started with Alcoa in fi nance 39 years ago, runs the Global Ethics & Compliance department to track metrics and determine if the company has a positive impact on the community. According to Minnis, “Our management has a very strong focus on safety. Alcoa is considered to be one of the safest corporations in the world.” The company’s Ethics and Compliance Council, which includes the CEO, vice presidents, and department directors, was formed in order to notify all executives of the latest in operations. The Council presents fi ndings to the Board on a quarterly basis.

Minnis told us that Alcoa’s Code of Conduct has been condensed to apply to specifi c roles and translated into different languages in order to make it an effective tool for all employees. The Code is also provided to suppliers, so they understand Alcoa’s expectations and policies. “If a vendor’s values or policies differ drasti-cally from Alcoa, chances are they won’t be doing business with us,” emphasizes Minnis. He continues, “The most important thing is our values. We have a set of values and policies that is consistent across the company, and we train all employees to adhere to and uphold those values.”

PERRY MINNISDirector of Global Ethics & Compliance

spotlightON SELECTED WINNERS

As part of the 2007 Word’s Most Ethical Companies analysis, Ethisphere Council researchers interviewed dozens and dozens of companies in great depth about their compliance and ethics activities. This included talking to “both” CEOs (the Chief Executive Offi cer and the Chief Ethics Offi cer) in most cases. Following are some excerpts and reports from selected companies that we found particularly worth highlighting.

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In business for 170 years, John Deere prides itself on enabling “human fl ourishing.” With core values of integrity, quality, innovation and commit-

ment, the company provides advanced products and services for agriculture, forestry, construction and landscaping, as well as manufacturing engines for use in heavy equipment. James R. Jenkins, Senior VP and General Counsel for Deere & Company, told us “John Deere fully recognizes the need to conduct business with integrity. Our broad approach to citizenship, coupled with market leadership, helps us improve the world while growing a business.”

Deere believes in creating and distributing service in ways that respect the earth’s limited resources while providing safe and healthy work-places to help employees develop to their full potential. Deere continually reinforc-es its commitment to helping fi nd policy solutions that benefi t the environment. “We believe that effective policy to address global climate change must include development and support of renewable energy sources including agricultural, forestry, wind and bio-technologies, as well as processing and distribution improvements,” says Jenkins.

With a passionate commitment to doing what is right and operating ethically, John Deere makes their conduct guidelines transparent to employees, customers, and suppliers. Acting out of principled, long-term self-interest, Deere contributes to the greater good by supporting the quality of life in their com-munities, protecting the environment and preserving precious resources. According to Jenkins, “We believe that exceptional performance will not be sustainable if it is at the expense of our values.”

When we spoke to Neil Nyberg, VP of Ethics & Compliance and Gary Pilnick, General Counsel for Kellogg’s, they declared, “W.K. Kellogg believed in

doing things the right way and built this company on integrity.” In business for 100 years, Kellogg’s has taken pride in its ethics and compliance program known as “K Values.” According to Pilnick, “It starts with the values, which guide behavior and ethical choices.”

Founder W.K. Kellogg wanted to do good things for people, starting with nutrition and the environment, and began promoting environmentally-friendly processes by producing the fi rst boxes of cereal in recycled packaging in 1906. Today, Kellogg’s uses 100% recycled packaging. In addition, Kellogg’s created a Social Responsibility Committee in 1979 that now deals with environmental concerns, health & safety, addiction and abuse, and other issues that impact employees and communities.

According to Nyberg, culture and diversity truly matter. “We see ourselves as role models. Our commitment to ethics is absolutely non-negotiable.” Kellogg’s recently received an award from the National Association for the Advancement of Colored People for diversity in compliance and ethics. Kellogg’s is also the 2007 national sponsor for Race for the Cure, and has a comprehensive program for United Way’s Days of Caring, in which the entire company donates time. “You can tell in the eyes of the employees that it is a great reminder of what we have and how lucky we are,” says Nyberg.

We spoke with Brackett Denniston, General Coun-sel for General Electric about creating an ethical culture and maintaining strong compliance programs.

Denniston believes “a good company thinks about its human side,” and how people are impacted by business practices. To answer the needs of employees and communities, GE is active in organizations like NAFTA and the National Electrical Manufacturers Association, and is a founder of Transparency International, a global society that fi ghts the impact of corruption on people worldwide. “You have to act like a leader, be a leader, and be aware of the impact of your actions and how they affect hundreds of thousands of people,” says Denniston.

GE dates back to 1892 and carefully considers the social impact of its prod-ucts and operations on the communities in which it operates. From jet engines to household appliances and fi nancial services to plastics, General Electric is dedicated to converting ideas into lead-ing products to help solve the world’s challenges. Compliance and governance challenges are equally important to GE and remain non-negotiable aspects of operations. “A strong compliance practice begins with the basics of incorporating good citizenship into the company culture,” says Denniston.

NEIL NYBERG, VP, Ethics & ComplianceGARY PILNICK, General Counsel

BRACKETT DENNISTONGeneral Counsel

JAMES R. JENKINS,Senior Vice President and General Counsel


with high potential for growth and profi tability. Companies that maximize the potential of all their employees, including women, are more likely to be successful in this competitive global market over the long term. For information, call 888.552.9363 or e-mail [email protected].

THE CENTER FOR BUSINESS

ETHICS (www.stthom.edu/academics/centers/cbes) at the University of St. Thomas works with the corporate community

to help business people and students make good choices that will benefi t themselves, their businesses, and their community. CBES offers ethical leadership training programs and other business ethics programming. The Center is business-friendly. We believe that companies and managers have an ethical duty to protect stakeholders, including shareholders and their property rights. We recognize the important role business institutions play in developing and maintaining a democratic system. CBES also explores the effects of individual and corporate actions upon others, including the more mar-ginal members of the community.

THE NEW ALTERNATIVES FUND (www.newalternativesfund.com) began operation in September 1982 as the fi rst environmental mutual fund with a signifi cant operation in alternative energy. We seek to be affi rmatively socially responsible by selecting companies that produce something that benefi ts the environment, including alternative energy, recycling, clean air and water, pollution prevention and conservation. Our environmentally oriented investments are positive forms of social investment.

WINSLOW MANAGEMENT COMPANY, LLC. (www.winslowgreen.com) is a registered investment advisor based in Boston, Massachusetts. Winslow has practiced green investing since 1983, and its client portfolios are composed of public companies that develop environmental solutions and companies with clean environmental operations. Winslow spe-cializes in small-cap growth equity investing and employs a proprietary research process that integrates fi nancial, environmental and governance analysis. The fi rm offers the Winslow Green Growth Fund (WGGFX), a green small-cap growth mutual fund; a hedge fund (open to qualifi ed investors); and separately managed accounts for individuals, endowments, corporate pension plans, foundations and other institutions.

FORESTETHICS (www.forestethics.org) was founded in 1994 and is a nonprofi t environ-mental organization with staff in Canada, the United States and Chile. Our mission is to protect endangered forests. By high-profi le, public campaign work or private work behind the scenes, we show companies such as Limited Brands, Staples, Home Depot, Dell and Williams-Sonoma how they can help protect endangered forests through forest ethics that guide their purchases of wood and paper products. These forest ethics include excluding endangered forest material from the supply chain, preferring Forest Stewardship Council (FSC) certifi ed products, increasing post-consumer recycled content and choosing paper products containing processed chlorine-free fi ber. We believe that protecting forests is everyone’s business.

THE WOMEN’S EQUITY FUND (www.womens-equity.com) was created in 1993 to broaden the participation and collective invest-

ing power of individual investors to advance the social and economic status of women in the workplace. We believe that by screening for companies with positive policies on behalf of women, we are selecting those companies

The editors of Ethisphere Magazine and the researchers for the 2007 World’s Most Ethical Companies ranking want to thank the following organizations for generously taking the time and effort to review the fi nalists for this year’s awards, and providing feedback on which companies merit recognition for their ethical leadership practices.

SUSTAINABILITY (www.sustainability.com) is a hybrid strategy consultancy and think tank. Our mission is to inspire and support the innovation that creates tomorrow’s values. We combine rigorous business insight with in-depth knowledge of the sustainability agenda in global markets, including the emerging economies. We work with business leaders to identify and manage key sustainability risks and opportunities. We are focused on six sectors: chemicals, capital markets and fi nance, energy, food and beverages, healthcare and the knowledge economy. For more information, contact Seb Beloe at +44 207 269 6900.

THE WORLD BUSINESS COUNCIL FOR

SUSTAINABLE DEVELOPMENT (www.wbcsd.org) is a CEO-led, global association of some 190 companies, dealing exclusively with business and sustainable development. The Council provides a platform for companies to explore sustainable development, share knowledge, experiences and best practices, and to advocate business positions on these issues in a variety of forums, working with governments, non-governmental and intergovernmental organizations. Members are drawn from more than 35 countries and 20 major industrial sectors. The Council also benefi ts from a global network of 55+ national and regional business councils and regional partners.

TRILLIUM ASSET MANAGEMENT

CORPORATION (www.trilliuminvest.com) has been a leader in socially responsible investing for over

twenty-fi ve years. We are guided by a belief that active investing can offer good returns to the investor, while also promoting social and economic justice. Trillium Asset Manage-ment is an independent employee-owned fi rm, dedicated to professional, high quality, individualized service for our valued clients. Our professional staff, in four offi ces across the country, carries on a mission started in 1982: To help our clients meet their fi nancial goals and have a positive impact on society through socially responsible investing.

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