W hat makes a company trustworthy? Customer loyalty is critical to a business’ long-term success: a mere 5 percent increase in customer retention can boost profits by as much as 125 percent, reports the Gartner Group.
Yet Americans are less likely than ever to put their faith in corporations, with perceptions of honesty dropping in 18 out of 19 industries last year. And while each industry retained some level of trust, 42% of adults said they wouldn’t trust any company in any of the industries that were surveyed.
That skepticism is not unfounded. While we may be past the bankruptcies and bailouts of the recession years, corporate fraud is still incredibly common. Over 70% of companies were impacted by insider fraud in 2013, according to the Kroll Corporate Fraud report.
It’s only natural to look for a ray of sun to contrast this seemingly dark cloud of corporate misbehavior — and there are certainly plenty of great companies out there conducting their business with ethics and integrity. But how do we know which ones to trust?
A number of organizations hope to solve that dilemma and give deserving companies their due by publishing annual lists that rank the trustworthiness of companies.
But what if the rankings themselves can’t be trusted? Curtis C. Verschoor, Accounting Professor and Research Fellow at the Institute for Business and Professional Ethics at DePaul University in Chicago, questions the accuracy of these feel-good rankings.
Verschoor took a closer look at two evaluations: GMI Ratings’ list of America’s 100 Most Trustworthy Companies published by Forbes, and The Most Trustworthy Public Companies list from Trust Across America (TAA). He concluded that both evaluations lacked consistency from one year to the next.
Trustworthiness is a long-term characteristic of an organization, Verschoor points out, based on an ethical corporate culture and the use of excellent governance practices. “Instilling that kind of culture within a company doesn’t occur overnight, however, and neither does it disappear so quickly,” he says.
For the Forbes/GMI list, 8,000 North American public companies were ranked using GMI’s proprietary methods to identify companies with transparent accounting practices and conservative corporate governance.
Not one of the top 10 companies in 2012 earned the top 10 ranking again in 2013, reports Verschoor. The Mid-Market Pulse’s review of the more recently released Forbes/GMI 2014 list shows that only 10 of the top 100 companies on the 2014 list were also on the list in 2013. Just five of those companies made the list in 2012.
Three of the five companies that made the list in all three consecutive years were mid-sized companies with market caps of $250 million to $1 billion: computer display systems maker Daktronics, Inc., chemicals distributor Hawkins, Inc., and pump manufacturer Gorman-Rupp.
GMI director James Kaplan explains that in a ranking of thousands of companies for multiple factors over four short quarters, one minor event can knock a company out of the top 100.
Still, it would be nice to know more about why companies fell off the list, how far they fell, and which factors contributed to the lower rankings. More transparent evaluations could help consumers, investors, and the companies conduct due diligence and make better decisions moving forward.
Verschoor separately examined TAA’s list of America’s Most Trustworthy Companies, which used public data from about 2,000 publicly-held companies to measure five equally weighted indicators of trustworthy behavior: financial stability and strength, accounting conservativeness, corporate governance, transparency, and sustainability.
As with the Forbes/GMI list, Verschoor reported significant volatility rather than expected consistency: only one company, Nike, appeared on the organization’s 2012 and 2011 lists (a 2013 list has not been released).
In 2012, TAA also awarded first place on its list of Most Trustworthy Public Companies to Green Mountain Coffee Roasters (now Keurig Green Mountain, Inc.). In 2013, the SEC announced charges against a former manager of Green Mountain Coffee Roasters for a $7 million insider trading scheme.
“In light of the continuing divergence of opinions and constant sudden change in companies recognized, much more effort needs to be expended on setting the standards for the characteristics of a trustworthy company and gaining consensus on how to measure them appropriately,” says Verschoor.
GMI’s Kaplan says placement on his group’s list is simply an honest reflection of what’s currently going on in the company. “That doesn’t mean it’s good or bad—but when you read it, you can believe it,” he says.
The question is – for how long?
Lisa Wirthman writes about business, women, & social good. She contributes to Slate, Forbes, and other publications and writes a column for the Denver Post. Follow her on Twitter @lisawirthman.