Battle of the Corporate Ethics Rankings
Corporate ethics rankings are a funny thing. Neat idea, in principle. But so much hangs on methodology. (I’ve blogged about such rankings here, here and here.) In fact — as it turns out — so much hangs on what you measure that one ranking organization’s villain can be another organization’s hero.
See this ranking, released last week by Multinational Monitor: The 10 Worst Corporations of 2008.
Of special note, General Electric is included on the list, due to its “creative accounting.”
In June, former New York Times reporter David Cay Johnston reported on internal General Electric documents that appeared to show the company had engaged in a long-running effort to evade taxes in Brazil. In a lengthy report in Tax Notes International, Johnston reported on a GE subsidiary’s scheme to invoice suspiciously high sales volume for lighting equipment in lightly populated Amazon regions of the country. These sales would avoid higher value added taxes (VAT) in urban states, where sales would be expected to be greater.
Johnston wrote that the state-level VAT at issue, based on the internal documents he reviewed, appeared to be less than $100 million. But, he speculated, the overall scheme could have involved much more.
Johnston did not identify the source that gave him the internal GE documents, but GE has alleged it was a former company attorney, Adriana Koeck. GE fired Koeck in January 2007 for what it says were “performance reasons.”
OK, so why have I singled out G.E., among the companies that Multinational Monitor includes on its list of corporate villains?
Well, as it turns out, G.E. was also included on Corporate Knights’ list of the
Best 50 Corporate Citizens 2008. In fact, G.E. was in the top 10!
Now, the Corporate Knights ranking has in its favour that it actually has (and states) a method: they look at a range of factors, and calculate a numerical score. As far as we can tell, Multinational Monitor is just picking companies with high-profile scandals. Having a clear method is good, both for consistency and for transparency. But of course, 2 years ago Corporate Knights’ ranking method put tobacco giant Rothmans Inc. at #2 on the list, and giving ethics kudos to a company that kills so many will strike many as, um, counterintuitive.
I’m not going to try to settle the fight. But Multinational Monitor and Corporate Nights probably ought to talk.
The Business Ethics Blog 
This is good. Reputation is a result of the total acts of all the employees in a company. Some acts weigh more than others, but they all measure up. There’s no way to measure any of this, so it seems that these lists are subjective. I know for me that GE seems like a very ethical company. Much of this opinion comes from GE’s former General Counsel Ben Heineman’s book High Performance with High Integrity. But if all I saw was the tax issue you described, maybe it would be different. So how much weight should be given to these lists?
The ratings themselves are only as good as the supporting methodology; however, one can learn a lot about a company by reviewing the various acts that equate to a good or bad ethical rating.
I am not sure if a company can be ethical or unethical. Their mission could be classified and the acts of individuals could be considered ethical or unethical, but I don’t think it is appropriate to categorize a multi-national as one or the other.
John W. Taylor
Tiarta LLC
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