Ethisphere list Includes Companies with Questionable Behavior

Last week I read a piece about the most ethical companies that caught my eye because it suggested that Blue Shield and other companies pay Ethisphere to be considered one of the most ethical companies in the world. Ethisphere develops a list each year of The World’s Most Ethical Companies. This is the third straight year that Blue Shield made the list.

The Ethisphere Institute is the self-proclaimed global leader in defining and advancing the standards of business ethical practices that fuel corporate character, marketplace trust and business success. Its annual ratings are considered to be reliable barometer of companies with sound ethical business practice. But, how do we know this is, in fact, the case?

An ethical organization is one that runs its business in accordance with certain core ethical values that would be part of its “corporate character”. The problem is it is difficult to understand how Ethisphere defines this term. To me, an ethical business “walks the talk” of ethics. Top managers live up to the values it espouses including honesty in business dealings, integrity, trustworthiness, fairness, respect, responsibility and accountability.

The reason the inclusion of Blue Shield has come under scrutiny is that a California state insurance commission investigation of the company found that the company’s 10% average increase in health premiums for 2014 that affected about 81,000 individual policyholders was “unreasonable”. The agency does not have the authority to reject changes in premiums. This latest rate hike amounted to an average increase of 32% over a two-year period.

Perhaps the issue of an unwarranted rate hike should not be enough to disqualify Blue Shield even though it certainly puts the public good after the interests of the company, which is not that unusual this days. However, when I looked at the list of the World’s Most Ethical Companies a bit closer, I saw one name that caught my eye -- Waste Management.

Waste Management, the garbage-disposal company, was involved in a massive financial fraud that led to a $7.5 million payment in 201 to settle charges that it broke Massachusetts environmental laws. Moreover, in February 1998 the company announced that it was restating its financial statements for the five-year-period 1992-1996 and the first three quarters of 1997 by almost $2 billion. An SEC investigation found that the company had violated the ant-fraud provisions of Rule 10b-5 of the Securities and Exchange Act of 1934. The SEC settled with several members of management for their roles in the fraud totaling about $32 million. The judgments against Waste Management top management included a 2001 settlement with the Connecticut attorney general of $457 million.

I’m always suspicious of how a company gets on the Ethisphere list and whether there is a “pay for play” element to decisions. For example, companies have to pay a processing fee to be considered for ethical glory. The fee ranges from $500 for nonprofits to $1,500 for companies with at least $500 million in revenue. A designated company can pay $10,000 for use of the World's Most Ethical Companies logo. Blue Shield of California has said it pays $6,000 a year to be part of Ethisphere's Business Ethics Leadership Alliance, "a community of companies [that] realize the inherent value of ethical leadership". Moreover, companies that make the list advertise that fact on their websites and in public releases. Blue Shield said the honor had been earned because of the company’s "strong culture of ethical behavior and integrity".

Personally, I don’t see why such a list is needed given there already are rankings for the World's Most Admired Companies and the Best Companies to Work For. Do we really need another list?

The most important issue for me is that any company that was involved in a major fraud should not be considered for an ethical business list. A company like Waste Management should not be allowed to trade on the designation as an ethical company and erase years of financial fraud simply with the stroke of a pen.

Ethics in business is not a spigot you a company can turn on and off when it suits them anymore than it is in life. There should be accountability for one’s actions that includes disqualification from consideration for inclusion in any such list of The World’s Most Ethical Companies.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on November 6, 2014. Professor Mintz teaches in the Orfalea College of Business at Cal Poly San Luis Obispo. He also blog at www.ethicssage.com.