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What Does It Take To Be One Of The World’s Most Ethical Companies?

A new list of the best companies in the world includes huge polluters and companies that make deadly weapon technology. Is this what we’re calling ethical these days? Or is being labeled “ethical” available for a price?

What Does It Take To Be One Of The World’s Most Ethical Companies?
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Based in Cedar Rapids, Iowa, Rockwell Collins had 2011 revenues of $4.85 billion, putting it just outside the top-10 U.S. aerospace and defense companies. It makes navigation systems for fighter jets and business aircraft, as well as products like the FireStorm Integrated Targeting System (video), and NavStrike™ 3.3 munitions-guidance system. Its clients include the Department of Defense, as well as militaries in places like Saudi Arabia and Bahrain.

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Rockwell is also, according to a new ranking from Ethisphere, a New York think tank, one of the “World’s Most Ethical Companies.” It appears in the 2012 list alongside 144 others, including Ford, Hasbro, and Alcoa.

“Our employees are proud to work at a company that takes ethics and compliance seriously,” says Rockwell’s senior counsel, Gary Chadick. “We are pleased to be recognized as one of the World’s Most Ethical Companies for the third consecutive year.”

How exactly does a company that helps maim and kill end up on a ranking of the most righteous?

Robert Leffel, Ethisphere’s director of client advisory services, says his team has long debated that point, and excludes alcohol and tobacco companies because of their impact. He says, though, that Rockwell deserves to be included because military products make up only a part of its business, and the company scores well for its compliance controls, diversity, and community activity.

“We’ve talked a lot to Rockwell Collins about this,” says Stefan Linssen, who works with Leffel on the rankings. “Our goal is certainly not to rubber-stamp the entirety of a company’s operations as fully ethical, and a lot of these companies’ compliance teams acknowledge that.”

(Actually, at least half of Rockwell’s revenue comes from defense, according to the Wall Street Journal.)

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The point about harmful companies is the not the only thing that irks critics of ethical awards. They also complain about a lack of transparency in methodologies, conflicts of interest with the companies ranking organizations are scrutinizing, and the fact that such lists can only ever be partial.

This year, about 5,000 companies overall completed Ethisphere’s 36-page multiple-choice questionnaire, which covers ethics and compliance programs, reputation and leadership, governance, corporate responsibility initiatives, and “culture of ethics.” Ethisphere calculates an “Ethics Quotient” (EQ) score for each company based on this, and then asks a short number to go forward, where claims are corroborated by documentary evidence the companies supply.

“The answers are never taken for granted,” Leffel says. “There are some checks and balances in the survey, and we aim to verify every response.”

Occasionally, Ethisphere rejects businesses if there are inconsistencies in their answers, or if companies have been less than truthful. Last year, for example, Ethisphere found that one nominee had failed to disclose it was about to be fined for a major antitrust infraction.

The accusations of conflicts of interest come from the way Ethisphere funds its scheme. Those with above-average EQs can buy “Ethics Inside” certification, or a benchmarking or evaluation report (cost: $700), or an on-site advisory session ($5,000).

But Leffel insists money would never influence which companies appear on the list (there is a “firewall” between ranking and advisory teams, he says). And he says not more than 10% of WMEs have a “material economic interest” with Ethisphere–meaning they don’t provide more than 1% of its revenues.

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As for the list inevitably being a partial one, though, Leffel doesn’t dispute the point. “Fortune runs the Most Admired Companies list, and I’m pretty positive they haven’t looked at every company under the sun either,” he says.

“It’s a list of the world’s most ethical companies known to us.”

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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