Exclusive: In wake of crisis, public eyes corporate ethics
BOSTON (Reuters) - Major consumer product and industrial companies dominated an annual list of the world's most ethical businesses, while after a government bailout of the U.S. financial system, no Wall Street banks were represented for a second straight year.
Some of the best-known U.S. companies, including General Electric Co (GE.N), Gap Inc GAP.N and Google Inc (GOOG.O), made The Ethisphere Institute's 2010 ranking of the 100 most ethical companies, released on Monday.
Automaker Ford Motor Co (F.N), iconic American brand Campbell Soup Co (CPB.N) and software company Adobe Systems Inc (ADBE.O) appeared in the top 100 this year, while automaker Toyota Motor Co (7203.T) and fast-food company McDonald's Corp (MCD.N) dropped off.
Investors have had their confidence shaken in recent years, by episodes like the huge fraud of Bernard Madoff's $65 billion Ponzi scheme and a bribery scandal at Siemens AG (SIEGn.DE), and questions like how much it is appropriate for banks propped up by government infusions to pay their top executives.
The companies that made the list stood out for focusing on ethics at top executive levels, said Alex Brigham, executive director of Ethisphere.
"The issue of ethics, reputational risk, is now in the board room," he said. "That just didn't exist a couple of years ago. Boards of directors have started really caring about this."
Top ethics officials at several major U.S. companies said honest business practices are critical after a brutal downturn that pushed the U.S. jobless rate as high as 10 percent, savaged retirement savings and home values and left many Americans less trustful of big business.
"Shareholders are much more activist. People are much more tuned in to what's going on behind the curtain," said Patricia Nazemetz, chief ethics officer at Xerox Corp (XRX.N), the U.S. office document management company. "Building the public trust is critical."
Ethisphere evaluated more than 3,000 firms on seven factors, ranging from how seriously their top executives take corporate citizenship, to how they manage compliance, to the effect their ethical leadership has on industry rivals.
The New York-based think tank evaluates companies with more than $50 million in annual revenue and at least 100 employees.
SEEING 'YOUR OWN REALITY'
Beyond building goodwill with consumers and investors, creating a culture of honesty can help companies to admit to themselves when their businesses are suffering -- which can allow them to better weather tough times.
"Part of being ethical is looking at your own reality with clear vision," said David Leitch, chief counsel at Ford. "It's being honest with yourself and your peers in the company ... having a real vision of our own reality and not fooling ourselves."
Internal candor helped prompt the Detroit automaker to borrow more than $23 billion to shore up its cash position, sell some brands and cut jobs ahead of the recession. Analysts have cited those moves as a key reason why Ford was able to avoid filing for bankruptcy and seeking government money, unlike rivals General Motors Co GM.UL and Chrysler Group LLC.
Rival Toyota's image has taken a blow in the United States since November 2009, when the world's largest automaker began recalling vehicles to fix gas pedals linked to bursts of unexpected acceleration. The Japanese company had played down complaints about the issue for several years.
EXPORTING ETHICAL CULTURE
As many U.S. firms tap into higher economic growth in emerging economies, where businesses and governments might be more inclined to corruption, executives are developing systems for teaching their ethical standards.
"What you try to do is have some leadership resources in places that are challenging early on," said Brackett Denniston, general counsel at GE, the largest U.S. conglomerate. "We hired a lawyer in Vietnam before we really had much business in Vietnam, because it's a tough culture."
(Reporting by Scott Malone, editing by Ros Krasny and Gerald E. McCormick)