The Top 100 Corporate Citizens List -- Or Is It?

The Top 100 Corporate Citizens List -- Or Is It?

The CRO Top 100 Corporate Citizens List was published (last Friday) and Sun showed up at No. 60. This is our fourth year in a row on this list --  we debuted at No. 70 (2006), fell to No. 71 (2007), kicked it all the way up to No. 19 (2008), and ended up at No. 60 on the 2009 list.  Actually, at first we ended up at No. 37 on the 2009 list, but then The CRO changed its methodology in late February (more on that later) and so our final spot was No. 60.

Sun is pleased when we show up on lists like these -- there are hundreds of (in this case 900) companies who would love to be able to declare themselves a "top corporate citizen" and we are gratified that our commitment to sustainable business is recognized on this and other lists (most recently with a jump on Fortune's "World's Most Admired Companies" list. One category in which we improved was "social responsibility."). That said, I am troubled by the methodology employed to compile this year's Top 100 Corporate Citizens list. I was troubled by the methodology last year, too, and I promised to revisit the issue.

I have two primary issues with the compilation of this year's list (to say nothing of the strangeness of The CRO's decision to change its methodology and category weightings three-quarters of the way through the process). First, by rewarding disclosure over performance, it is my opinion that this list values quantity over quality. The more you disclose, the better you do on this ranking, although this disclosure does not necessarily mean your "corporate citizenship" performance is better or worse than those who come before or after you on the list. I believe this accounts for the number of oil and gas and mining companies on the list (Exxon is ranked at No. 11!) -- much of their disclosure is legally required (and since the "lobbying" category was removed entirely from this year's ratings, the amount of effort many companies employ so as to avoid such regulations is not even considered).

My second issue with the 2009 list is with the methodology itself (and the fact that the methodology used in the final list compilation is not the same as the methodology originally developed for this list. It changed some time between February 9, 2009, and March 1, 2009. I know this because I first received an email on February 9 sharing the preliminary results and the new categories and their relative weighting. I received another email the first week in March with a new ranking based on an entirely new methodology, which I talk about later in this post). The biggest grievance I have is with the neutering of the governance category. This was done in two ways: changing the weighting from 16 percent to 7 percent and removing CEO compensation as a factor in determining a company's governance "score."

That's right -- CEO compensation, a hot button governance issue, particularly as each day brings new headlines of exorbitant CEO pay and bonuses (at companies like Citigroup, No. 35 on the list) -- is no longer a factor in determining the Top 100 Corporate Citizens. And by removing CEO compensation (as well as the age of board directors) as one of the factors, many companies on the list saw their governance ranking skyrocket -- 50 of us tied with a ranking of "1" in this category. (Full disclosure: Sun's ranking before the removal of CEO compensation was 22 -- a pretty good rank. After the removal we joined 49 others at No. 1.) Because of this 50-way tie, The CRO decided to reduce the weight of the governance category to 7 percent, effectively eliminating the category's relevance to the list at all.

When I asked The CRO about this change, the explanation I got was that the Black-Shoales model, used to determine the future value of stock options, is "a calculation that is virtually impossible to explain..."  Now look, my eyes definitely glossed over when I was "learning" Black-Shoales in my first year MBA finance class -- it is difficult to explain and hard to understand. But you know what? So are things like normalized GHG emissions for the uninitiated. But we use these formulas because we know that evaluating these aspects of a company are important to understanding its overall "corporate citizenship" picture.

Let me also note that in reducing the governance weighting by nine percentage points, the CRO needed to redistribute the percentages to the other categories. One of those categories was philanthropy, which went from a 5 percent weighting up to 9 percent. So now the list is saying that how much money, product and services a company gives away (and not even accounting for the impact of such philanthropy) is a more important determinant of their “citizenship” than their good governance practices.

I can't wrap my head around a Top 100 Corporate Citizens List -- even a list on which Sun appears -- that effectively eliminates good corporate governance practices as a factor in its evaluation. In 2009, with our financial institutions buckling around us due at least in part to poor governance, how valuable is a ranking of companies that disregards the importance of this in evaluating a company's "citizenship"?

And how are companies like Sun supposed to use this list to help us improve our practices and our performance? If "tough" questions are removed -- CEO compensation, lobbying activities, protection of human rights under oppressive regimes (and I believe many of these questions are the ones that get at a company's performance, not just disclosure) -- stakeholders have one less lever to use as they try to drive companies toward -- and hold us accountable for -- more sustainable business practices. 

Marcy Scott Lynn is the director of corporate social responsibility at Sun Microsystems. This post was published originally on To view the original piece, click here.