The ethics of firms paying to be honored for ethics

Peter Humber was watching TV at his home in Montecito Heights recently when an ad for Blue Shield of California came on.

“We’ve been named one of the world’s most ethical companies,” the ad said. “Hey, remember when things like ethics mattered?”

Humber, 78, couldn’t believe what he was hearing.

“They’re one of the most ethical companies?” he told me. “After everything I’ve heard about them?”

What Humber was referring to was Blue Shield being criticized by the state insurance commissioner earlier this year for an “unreasonable” average 10% rate hike affecting about 81,000 policyholders.

“Who would name them one of the world’s most ethical companies?” Humber wanted to know.

Good question.

It’s apparently a point of honor among some corporations to be named one of the World’s Most Ethical Companies. There already are rankings, after all, for the World’s Most Admired Companies and the Best Companies to Work For.

Blue Shield issued a press release in March saying that it had been recognized as one of the World’s Most Ethical Companies for the third year in a row. The company said the honor had been earned because of Blue Shield’s “strong culture of ethical behavior and integrity.”

Dozens of other companies issued similar press releases around the same time. Waste Management, the garbage-disposal company that in 2011 paid $7.5 million to settle charges that it broke Massachusetts environmental laws, touted its inclusion among the World’s Most Ethical Companies.

So did Eastman Chemical, which faces lawsuits alleging that it did not adequately warn of the dangers of a chemical that spilled into a West Virginia river earlier this year, leaving more than 300,000 people without water for days.

In fact, 144 companies representing 41 industries were named this year’s World’s Most Ethical Companies by the Ethisphere Institute.

The Ethisphere Institute describes itself as “the global leader in defining and advancing the standards of ethical business practices.” That would seem to be a pretty big responsibility, requiring the highest standards of ethical conduct and financial purity.

Despite a name that suggests ivy-covered walls and a fiercely nonprofit status, Ethisphere is a for-profit corporation based in Scottsdale, Ariz.

I spoke with Tia Smallwood, Ethisphere’s chief marketing officer. She said about 600 companies were considered for inclusion on this year’s most-ethical list. Nearly all nominated themselves, she said.

To be named one of the World’s Most Ethical Companies, a company must respond to a survey containing about 150 questions about its “culture of ethics,” leadership and corporate citizenship. Nominees are encouraged to provide supporting materials, such as the ethical training that employees undergo.

Smallwood said Ethisphere then scores and ranks nominees based on their answers and submissions.

“Somebody might say that their code of conduct covers all risks, but we might determine that the code is too vague or inadequate,” she said. “This would cause us to give a lower score.”

Smallwood said Ethisphere performs its own due diligence by searching online for information about the company.

“It’s more than just a Google search,” she said. “We’ll look at websites where employees might lodge complaints. We’ll look at what’s been written about the company.”

And from this exhaustive process, its reviewers finally will settle on which companies deserve the status of World’s Most Ethical.

Ethisphere is funded primarily by ethics seminars it holds each year, as well as by ads taken out by businesses in its quarterly magazine. The World’s Most Ethical Companies also can pay $10,000 for use of the World’s Most Ethical Companies logo.

Beginning this year, companies also 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.

Smallwood said the potential for a conflict of interest is negated by the fact that Ethisphere prohibits any of the World’s Most Ethical Companies from providing more than 1.5% of its annual revenue. She declined to say how much revenue the privately held firm collects.

Smallwood also said Ethisphere does not comment on individual honorees, and thus would not address how a scandal-tainted business such as Eastman Chemical would be among this year’s World’s Most Ethical Companies.

She did say, though, that Blue Shield of California does not sponsor Ethisphere events or advertise in its magazine. But the health insurer does have a financial tie to the Arizona organization, Smallwood acknowledged.

She said Blue Shield of California 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.”

Smallwood discouraged me from making too much of this. She said there’s nothing improper — or, perish the thought, unethical — about paying membership dues to an entity that also decides which self-nominated companies are the most ethical in the world.

Sean Barry, a Blue Shield spokesman, also said there was no problem with the insurer making payments to the honor-bestowing company.

“The annual fee is relatively small,” he said, “and it’s my understanding that decisions about the award are completely separate from membership.”

Indeed, Ethisphere says that “organizations are honored for their programs, practices and policies,” not because they have a business relationship with the firm.

Apparently, Blue Shield and Ethisphere haven’t quite grasped that the appearance of a conflict can be just as troubling as an actual conflict.

Nor do they seem to understand that the awarding of an ethics accolade to a company that gives you money just doesn’t pass the smell test.

Hey, remember when things like ethics mattered?

Blue Shield doesn’t. Neither does the Ethisphere Institute.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.