Ethical companies do well financially, compared to the market, according to data from Ethisphere. Specifically, Ethisphere reports a 6.4% better return for its 2017 World’s Most Ethical Companies honorees as compared to the S&P 500 over the last two years (Ethisphere, 2017a).
Every year since 2007, Ethisphere has evaluated nominees for a “world’s most ethical company” (WMEC) designation against five core categories: ethics and compliance programs (35% of the score), corporate citizenship and responsibility (20% of the score); culture of ethics (20% of the score), governance (15% of the score), and leadership, innovation, and reputation (10% of the score). Here are the factors considered in each (Ethisphere, 2017b):
Ethics and compliance programs: Performance indicators associated with ethics and compliance program structure, responsibility, and resources; program oversight and tone at the top; written standards; training and communication; due care; detection, monitoring, and auditing; and enforcement and discipline.
Corporate citizenship and responsibility: Performance indicators associated with environmental stewardship, community involvement, corporate philanthropy, workplace impact and well-being, and supply chain engagement and oversight. Ethisphere considers the quality and effectiveness of the initiatives in addition to stated and measurable goals, accountability, and transparency.
Culture of ethics: Performance indicators associated with organization tone, such as efforts to establish an ethical tone from the top and middle, frequency with which culture is evaluated, and metrics and outcomes associated with measuring a culture of ethics.
Governance: Performance indicators associated with systems designed to ensure strong corporate governance, such as oversight, governance principles, and risk management.
Leadership, innovation, and reputation: Performance indicators associated with legal compliance and ethical track record, along with the organization’s reputation in the marketplace with key stakeholders such as employees and customers.Factors considered in each
From this year’s WMEC honorees, (124 companies spanning 19 countries and 52 industry sectors), Ethisphere saw “appreciable change or interesting developments in three key areas” (Ethisphere, 2017c): governance; measuring culture; and program resources, autonomy, and authority.
Ethisphere reports that “governance continues to evolve,” with a focus on gender diversity, which, it says, supports an environment of effective governance and increased performance (see the opening statement about WMEC financial performance).
More directly specific to ethics and compliance, Ethisphere reports that a majority of its WMEC honorees measure aspects of their corporate culture on a regular basis, with 57% using a survey targeted to measure employee perceptions of ethical culture and/or compliance programs and 77% including questions about organizational culture as part of a broader HR or engagement survey. Most of the companies (92%) report their findings to the board; most include stories—even real (albeit scrubbed) stories from inside the organization.
According to Ethisphere, and increasing number of WMECs are ensuring the ethics and compliance program ownership is a full-time, dedicated position—over half now dedicate more than 90% of their time to the role—and nearly 75% of the companies have given the title “Chief Compliance and/or Ethics Officer” to the top official. Many firms also ensure cross-functionality.
Leading companies maintain a compliance function that is not only increasing its authority vertically within an organization, but that is also expanding its level of involvement cross-functionally. This broadening exposure notably includes compliance dedicating time with sales and marketing departments in order to educate staff on how ethics and compliance can be leveraged into a competitive advantage (as reported by 90 percent of honorees).
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Ethisphere. The Ethics Premium. Ethisphere web page, 2017a. http://ethisphere.com/ethics-data/
Ethisphere. The EQ [Ethics Quotient] Framework. Ethisphere web page, 2017b.
Ethisphere. Early Insights: 2017 World’s Most Ethical Companies Honorees. 2017c.