The Ethisphere 2021 World’s Most Ethical (WME) companies awards and reports are out. Over the next few posts, I will be examining these reports and information together with Erica Salmon Byrne, Executive Vice President and Chair of Business Ethics Leadership Alliance (BELA), Ethisphere. In today’s blog, I am going to consider the 2021 World’s Most Ethical Companies awards, sliced and diced in a variety of ways. Over the rest of this week, we will look at three reports issued in conjunction with the 2021 World’s Most Ethical Companies. We will consider leading practices on managing a global workforce effectively, leading practices on managing third-parties risks, and leading practices in effective training and communications in a compliance program.
We begin with the Ethics Premium, 2021’s WME companies outperformed a comparable index of large cap companies by 7.1 percent from January 2016 to January 2021. This confirms Ethisphere’s long term findings that the “World’s Most Ethical Companies honorees have historically out-performed others financially, demonstrating the connection between good ethical practices and performance that’s valued in the marketplace.” Byrne noted, “this is an analysis that we do every year of this, the stock performance of the publicly traded companies that are on our list. Obviously, we can’t do a financial analysis of the private companies, and there are certainly private companies on the list, but for the publicly traded companies, this year’s five-year Ethics Premium was 7.1%. So that means that the companies that comprised our list over the course of the last five years outperformed the large, the comparable large cap indices by 7.1%. That’s a 15 years’ worth of analysis Ethisphere has done. And every year there’s a degree of outperformance.”
Ethisphere Chief Executive Officer (CEO) Tim Erblich said in Press Release, “The outperformance, which we refer to as the “Ethics Premium,” has remained consistent since we began tracking the equity performance of honoree companies. We believe this outperformance is the result of the kinds of practices that lead a company to be on our list – practices that demonstrate investment in their people, in their culture, and in their communities. We see in this data that those practices, over time, lead to stronger financial performance.” This number alone demonstrates the great investment through which robust compliance programs provide solid returns to companies. What is the market cap of a multi-billion dollar multi-national business? Take a $20 billion energy company, one that has consistently been awarded WME status would have a $1.2 billion delta over non-WMW companies. Think good ethics does not increase revenue? The Ethisphere Ethics Premium says you need to think again.
What were some of the other numbers for this year’s A class of WME? There were companies who received the designation. Those companies represented 47 industries spread out over 21 countries. As Byrne noted, they are all over the map in terms of size of organization, scope of revenue. In 2021, nine companies are first-time honorees, while six have been recognized 15 times, every year since the awards inception in 2007.
How does a company garner the WME designation? It is through a rigorous process. Indeed, the process itself is so rigorous that many companies use it as a benchmark for their own program and, more importantly, to uncover program gaps. It begins with a company filling out an Ethics Disclosure Questionnaire. Byrne said, “From there companies submit documentation to the review team that helps Ethisphere to validate the practices reflected in over the course of the survey responses. The team reviews all of that adjust scores as necessary based on the strength of the documentation provided. And then we compare your performance by industry. That performance then allows us to decide who ends up on the list.”
Once a submission is made, it is then analyzed through the prism of “Ethisphere’s Ethics Quotient®; a proprietary rating system that collects and objectively scores self-reported data in five weighted categories. Questions included in the Ethics Quotient are periodically reviewed and updated based on changing regulations, expectations, and best practices. Supporting documentation is required for consideration as one of the World’s Most Ethical Companies.” The five categories include governance, leadership and reputation, ethics and compliance program, culture of ethics and environmental and societal impact.
We end by focusing on three key findings from this year’s data, other than the Ethics Premium. Here Byrne noted, “One is, we added a new question this year to the survey around the practices that an organization goes through to onboard a new director and which of the control functions would a new director meet with as part of that process.” Second, “we asked a series of questions about liaison programs.” This was directly due to Covid-19 and the bans on travel. The Covid experience taught many compliance professionals that you cannot be “in all places at all times. Right?” This has led many companies to increasingly “be interested in establishing effective liaison programs. What does it take to have an effective liaison program who should be in my liaison program? We asked a series of questions about that, and we’ll be talking a lot about that over the course of the spring.”
The third area Byrne mention was “the ways in which companies got very creative during the pandemic about communicating with employees. We saw so many innovative practices, during the course of the pandemic. Strategies such as short form video, which are not over-produced. Just quick and easy ways of trying to engage an audience using different messengers, using different modalities.” It has even extended to augmented reality enabled training and short form video, which Byrne noted are “really innovative attempts at communicating and connecting to employees. And I hope those continue.”
Much of the information in this year’s WME awards and reports will be discussed in Ethisphere’s 2021 Global Ethics Summit, which will be held virtually April 13-15. Readers of this blog will receive a 15% discount to Ethisphere’s Global Ethics Summit For more information and registration details click here. Use the code tomfox15 for your discount.
Join us tomorrow where I continue my exploration of the 2021 WME information with Byrne as we take a deep dive into leading practices on managing a global workforce effectively.
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