Leadership & Ethics

A corporation’s leadership shapes its culture and its future. Yet the Ethics Resource Center found that 60% of ethical misconduct involved someone with managerial authority in 2014.

A major factor in how Americans defined corporate JUSTness involved the behavior of corporate leadership. Do leaders behave with integrity and honesty? Do they carefully steward the resources of the corporation? Below are the Components that Americans defined as important in measuring JUST leadership, and how we are measuring corporate performance for each of them.


Components

Following are Components that Americans said were important in defining Leadership & Ethics, and how we are measuring corporate performance for each of them. Hover on the metrics (bolded black text) for more detail on the definition of each component and the metrics used to rank them.


Follows Laws & Regulations

Does the company and its leadership abide by US laws? According to our 2015 Survey, 96% indicated that lawful conduct was important in measuring the JUSTness of leadership.

Commitment to Follow Laws & Regulations

The company follow laws and regulations based on assessments of whether the company a) describes in its code of conduct that it strives to maintain the highest level of general business ethics; and b) provides appropriate communication tools (whistle blower, ombudsman, suggestion box, hotline, newsletter, website, etc.) to improve general business ethics.

Each of these two points is awarded a value of 5 if true and summed based on the sources listed below.

Controversies in Legal & Regulatory

The number of severe and very severe cases (major scandals or systematic risk incidents) in influential and highly influential news sources occurring in the US over the past three years that pertain to the violation of national legislation.

Data Source(s): RepRisk
Geography: US
Unit of Measurement: Number

Legal Fines and Violations

Dollars of fines over the past three years from the Alcohol and Tobacco Tax and Trade Bureau, Bureau of Industry and Security, Commodity Futures Trading Commission, Fannie Mae, Federal Aviation Administration, Federal Aviation Administration referral to the Justice Department, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Motor Carrier Safety Administration, Federal Railroad Administration, Federal Reserve, Food and Drug Administration, Food and Drug Administration referral to the Justice Department, Freddie Mac, Justice Department Antitrust Division, Justice Department Civil Division (selected cases), Justice Department Criminal Division, Justice Department multiagency referral, Justice Department Tax Division, Mine Safety & Health Administration, Mine Safety & Health Administration settlements, National Credit Union Administration, National Highway Traffic Safety Administration, National Highway Traffic Safety Administration referral to the Justice Department, Nuclear Regulatory Commission, Occupational Safety & Health Administration, Occupational Safety & Health Administration corporate-wide settlements, Office of Foreign Assets Control, Office of the Comptroller of the Currency, Securities and Exchange Commission (FCPA cases), Securities and Exchange Commission selected cases, Southern District of New York (selected cases), Treasury Department Financial Crimes Enforcement Network, U.S. Department of Agriculture referral to the Justice Department.

Data Source(s): Good Jobs First Violation Tracker
Metric Type: Fine
Geography: US
Unit of Measurement: US Dollars


Has Leaders with Integrity

Does the company have honest leaders? According to our 2015 Survey, Americans identified a variety of related topics to include in measuring JUST leadership. These ranged from enforcing ethics policies, to honesty, to responsible business practices.

Controversies in Integrity

Description: Assessments of whether:

  1. a senior executive of the company has been dismissed or faced criminal or other prosecution for personal misconduct or misrepresentation within the past two years. This includes the following: Embezzlement, Company Theft, Executive, Director Misrepresentation of Credentials or Qualifications, External or Other Criminal Activity, Inappropriate Relationships, Inappropriate Use of Company Assets, and Illegal Trading. The specific event triggers used are: Arrest, Charges, Dispute, Investigation, Litigation, Subpoena or Settlement, Conviction, and Fine.
  2. there are directors on the board whose previous history of board service raises concerns about this board’s integrity. Flagged if yes, including individual directors who have been involved in a corporate bankruptcy or other major loss of shareholder value, even when those circumstances are subsequently omitted from that individual’s personal bio. Individual directors are only flagged if their board service began at least one full year prior to the event in question. These flags do not expire.

Value of 10 if data point 1 is True. Value of 5 if data point 1 is False and data point 2 is True. Value of 0 if both are False.

Data Source(s): MSCI
Metric Type: Controversy
Geography: Global
Unit of Measurement: Score (0-10)


Company Leadership

Description: Crowd-sourced average rating of a company’s culture and values measured on a five-point scale by current and former employees of each company.

Data Source(s): Glassdoor
Metric Type: Crowd-sourced
Geography: US
Unit of Measurement: Score (0-5)


Board Governance

Description:The independent director composition of the Board. Independence is as defined by ISS in their US Proxy Voting Guidelines. Directors are classified, depending on their relationships and affiliations with the company or its executives, as either Inside Director, Affiliated Outside Director, or Independent Outside Director. The value shown here is the percentage classified as Independent Outside Directors.

Data Source(s): Institutional Shareholder Services (ISS)
Metric Type: Performance
Geography: Global
Unit of Measurement: Percent


Related Party Transactions

The existence of material related-party transactions involving the CEO or company directors, either directly or indirectly (through employers and immediate family members).

In the U.S., a material transactional relationship is defined as one that: includes grants to non-profit organizations; exists if the company makes annual payments to, or receives annual payments from, another entity exceeding the greater of $200,000 or 5% of the recipient‘s gross revenues, in the case of a company which follows NASDAQ listing standards; or the greater of $1,000,000 or 2% of the recipient‘s gross revenues, in the case of a company which follows NYSE/Amex listing standards. In the case of a company which follows neither of the preceding standards, ISS applies the NASDAQ-based materiality test.

A material professional service relationship is defined as one that includes, but is not limited to the following: investment banking/financial advisory services; commercial banking (beyond deposit services); investment services; insurance services; accounting/audit services; consulting services; marketing services; legal services; property management services; realtor services; lobbying services; executive search services; and IT consulting services; exists if the company or an affiliate of the company makes annual payments to, or receives annual payments from, another entity in excess of $10,000 per year.

Data Source(s): Institutional Shareholder Services (ISS)
Metric Type: Performance
Geography: Global
Unit of Measurement: True or False


Is Truthful in Advertising and Labelling

Does the company misrepresent itself or its products in its communications? According to our 2015 survey, 92% of Americans identified truth in advertising as important in measuring JUST leadership.

Advertising Fines and Violations

Description: Fines over the past three years from the Federal Trade Commission.

Data Source(s): Good Jobs First Violation Tracker
Metric Type: Fine
Geography: US
Unit of Measurement: US Dollars


Pays Fair Share of Taxes

Does the company pay a reasonable amount of taxes? According to our 2015 Survey, 92% of Americans said that paying a fair share of taxes and not exploiting loopholes was important to measuring JUST leadership.

Effective Us Tax Rate

Description: The US tax rate is calculated by adding the US Federal and State taxes (both current and deferred) and dividing that by pre-tax income from the US only. To adjust for the new ASC 718 rules coming into effect next year (simplifying share-based compensation expense accounting), we retroactively add the excess tax benefit from share-based compensation to the numerator. We also bind the output to a range of between 0% and 60%, and then take the trailing five-year average of these tax rates.

Data Source(s): JUST analysis: Publicly available company documents
Metric Type: Performance
Geography: US
Unit of Measurement: Percent

Incorporated Outside the U.S.

Description:Whether the company is incorporated or reincorporated outside the U.S., while maintaining corporate headquarters and/or primary trading exchange in the U.S. Each company is assigned a score of either 0 for non-U.S. companies or 10 for U.S. companies based on jurisdiction or incorporation.
Data Source(s): Bloomberg
Metric Type: Performance
Geography: Global
Unit of Measurement: Score (0 or 10)


Minimizes Political Spending

Does the company seek to influence politics? According to our 2015 Survey, 75% of Americans said that the extent to which a company participates in lobbying, seeks to influence politics, or spends on political campaigns was important in measuring JUST leadership.

Transparency and Oversight of Political Spending

A numerical score based on 24 indicators of political spending disclosure, oversight and policy.

Data Source(s): CPA-Zicklin Index

Metric Type: Performance
Geography: US
Unit of Measurement: Score (0-70)