John Ruggie, Special Representative of the UN Secretary-General for Human Rights, in Geneva, Switzerland. March 2007.

The United Nations Human Rights Council today endorsed the Guiding Principles on Business and Human Rights proposed by UN Special Representative John Ruggie.  The principles provide guidance for implementing the UN “Protect, Respect, Remedy Framework,” which rests on three pillars:

1. The state duty to protect against human rights abuses from third parties, including business, through policies, regulation, and adjudication;

2. The corporate responsibility to respect human rights, implementing due diligence to avoid infringement and address adverse impacts;

3. Access to effective remedy for victims of human rights abuses.

The council’s vote marks more than the end of Ruggie’s successful mandate. It also signals the beginning of a new chapter in the struggle to address and eliminate human rights abuses involving business. Going forward, with a new UN working group building capacity for and driving implementation of the Guiding Principles, companies will implement the human rights due diligence called for in the Guiding Principles; governments will strengthen their policies and regulations in this area; and investors and non-governmental organizations (NGOs) will align their expectations and advocacy around the principles’ standard for corporate responsibility.

Today, most CSR executives (and corporate lawyers) are likely wondering, “What does this mean for my company?”

From Unproductive Dialogue to Global Consensus

Before addressing the implications for business, it is worth examining what it took to get us here. Ruggie achieved what seemed unthinkable in 2005 at the beginning of his mandate. Back then, facing intense business opposition and strong NGO support, the UN Human Rights Commission declined to act on the so-called Draft Norms, which would have assigned to business the same human rights duties as governments (albeit a subset of rights deemed business-relevant). In essence, the business and human rights dialogue was unproductive and lacked even a common definition of the problem.

Today, the debate is driven by clear definitions and a global consensus, despite many new and arguably more complex human rights and business challenges. The consensus among governments, businesses, civil society organizations, and investors, is particularly remarkable. Organizations as varied as the International Trade Union Confederation, the International Chamber of Commerce, NGOs like EarthRights International, companies like Coca-Cola and Total, the Chinese government representative at the UN Human Rights Council, and investors representing more than US$2.7 trillion in assets have all generally voiced their support for the Guiding Principles. Granted, some advocacy groups, including Human Rights Watch and Amnesty International, have voiced important criticism, suggesting that the principles’ standards for government and business are too low. But even these organizations likely will invoke the Guiding Principles in their efforts with business, while advocating at the UN level for more stringent standards.

‘Principled Pragmatism’ and Broad Stakeholder Engagement

Ruggie achieved this level of consensus in large part by relying on two important approaches: “principled pragmatism” and broad, inclusive stakeholder engagement. His mandate and the resulting standards did not compromise on fundamental human rights principles, and it was nonetheless pragmatic about what is achievable today. Crucially, the standards did not let perfect become the enemy of good. In this vein, Ruggie notes that while the Guiding Principles will not end business and human rights challenges by themselves, they will provide “a common global platform for action, on which cumulative progress can be built, step-by-step, without foreclosing any other promising longer-term developments.”

Ruggie’s emphasis on broad and inclusive stakeholder engagement was equally important in achieving the widespread support for the principles. He conducted 47 international consultations with governments, businesses, civil society representatives, and investors. Some engagements were open, others were behind closed doors, and all were supported by an online consultation that solicited input from a wider range of stakeholders.

Ruggie’s success underscores the importance of global and inclusive stakeholder engagement, which, combined with the team’s “principled pragmatism” will surely also guide the new UN working group’s efforts to implement the principles.

‘Know and Show’ Respect for Human Rights

So what does this mean for business? The principles are neither legally binding, nor do they establish new responsibilities for business. Rather, they clearly articulate society’s current, simple expectation: Companies have a responsibility to respect human rights. That means:

• Adopting a human rights policy commitment
• Ensuring non-infringement through human rights due diligence
• Addressing any adverse human rights impacts the company was involved in
• Measuring and reporting on performance.

In short, the principles call on companies to “know and show” that they respect human rights.

Even though the principles are simply a clearer articulation of existing societal expectations, the development of effective human rights management systems will feel new to many companies. There are about 80,000 multinational companies today, and, according to the Business and Human Rights Resource Center’s list, only 271 companies have human rights policies. That number is likely to rise significantly.

While the principles provide companies with more detailed guidance on human rights policies, due diligence, and operational-level grievance mechanisms, they are not intended to be an off-the-shelf tool. Ruggie’s mandate encompassed all business enterprises, and so, in theory, the Guiding Principles apply to a multinational company like GE as much as they do to the dry cleaner down the street. They are intentionally high level and allow for customization in some areas based on the company’s size, resources, and human rights risks.

In addition to guiding the way companies implement human rights management systems, the principles will also affect companies’ relations with government and civil society. While the principles are not legally binding, the UN endorsement of and broad consensus on the principles will likely lead to an alignment of public policy and stakeholder expectations for companies around the human rights management steps outlined in the principles.

Already, governments such as Australia, Canada, the EU, and the UK have applied the UN Protect, Respect, Remedy Framework in their public policy. We can expect governments to begin implementing the principles’ many recommendations directed at them, including, for example, encouraging or requiring corporate human rights disclosure.

In addition, investors and advocacy organizations will be more consistent in their demands for companies to demonstrate and ensure respect for human rights through the measures outlined in the principles. As mentioned above, a group of 29 investors, including asset managers such as F&C and the major pension funds, PGGM and USS, have endorsed the principles, and their human rights research and shareholder advocacy will no doubt be guided by them.

Ultimately, pressure on companies to act will increase and be more consistent, which will lead to more companies establishing the necessary management systems. Many companies have already or are about to begin this process. Johnson & Johnson recently adopted a human rights policy that aligns with the expectations articulated in the principles and the UN Protect, Respect, Remedy Framework. Goldcorp commissioned a human rights impact assessment referencing the framework. And Citigroup commits in its latest citizenship report to engage with stakeholders and peers to explore how banks can implement the framework and principles. With the UN’s endorsement of the principles, more companies will follow suit.

Faris Natour leads BSR’s human rights practice, advising companies on human rights strategy, policy development, human rights impact assessments, and other elements of human rights due diligence.

The Ohio medical board concluded that pain physician William D. Leak had performed “unnecessary” nerve tests on 20 patients and subjected some to “an excessive number of invasive procedures,” including injections of agents that destroy nerve tissue.

Yet the finding, posted on the board’s public website, didn’t prevent Eli Lilly and Co. from using him as a promotional speaker and adviser. The company has paid him $85,450 since 2009.

In 2001, the U.S. Food and Drug Administration ordered Pennsylvania doctor James I. McMillen to stop “false or misleading” promotions of the painkiller Celebrex, saying he minimized risks and touted it for unapproved uses.

Still, three other leading drug makers paid the rheumatologist $224,163 over 18 months to deliver talks to other physicians about their drugs.

And in Georgia, a state appeals court in 2004 upheld a hospital’s decision to kick Dr. Donald Ray Taylor off its staff. The anesthesiologist had admitted giving young female patients rectal and vaginal exams without documenting why. He’d also been accused of exposing women’s breasts during medical procedures. When confronted by a hospital official, Taylor said, “Maybe I am a pervert, I honestly don’t know,” according to the appellate court ruling.

Last year, Taylor was Cephalon's third-highest-paid speaker out of more than 900. He received $142,050 in 2009 and another $52,400 through June.

Leak, McMillen and Taylor are part of the pharmaceutical industry’s white-coat sales force, doctors paid to promote brand-name drugs to their peers — and if they’re convincing enough, get more physicians to prescribe them.

Drug companies say they hire the most-respected doctors in their fields for the critical task of teaching about the benefits and risks of their drugs.

But an investigation by ProPublica uncovered hundreds of doctors on company payrolls who had been accused of professional misconduct, were disciplined by state boards or lacked credentials as researchers or specialists.

This story is the first of several planned by ProPublica examining the high-stakes pursuit of the nation’s physicians and their prescription pads. The implications are great for patients, who in the past have been exposed to such heavily marketed drugs as the painkiller Bextra and the diabetes drug Avandia — billion-dollar blockbusters until dangerous side effects emerged.

"Without question the public should care," said Dr. Joseph Ross, an assistant professor of medicine at Yale School of Medicine who has written about the industry’s influence on physicians. "You would never want your kid learning from a bad teacher. Why would you want your doctor learning from a bad doctor, someone who hasn’t displayed good judgment in the past?"

To vet the industry’s handpicked speakers, ProPublica created a comprehensive database that represents the most accessible accounting yet of payments to doctors. Compiled from disclosures by seven companies, the database covers $257.8million in payouts since 2009 for speaking, consulting and other duties. In addition to Lilly and Cephalon, the companies include AstraZeneca, GlaxoSmithKline, Johnson & Johnson, Merck & Co. and Pfizer.

Although these companies have posted payments on their websites — some as a result of legal settlements — they make it difficult to spot trends or even learn who has earned the most. ProPublica combined the data and identified the highest-paid doctors, then checked their credentials and disciplinary records.

That is something not all companies do.

A review of physician licensing records in the 15 most-populous states and three others found sanctions against more than 250 speakers, including some of the highest paid. Their misconduct included inappropriately prescribing drugs, providing poor care or having sex with patients. Some of the doctors had even lost their licenses.

More than 40 have received FDA warnings for research misconduct, lost hospital privileges or been convicted of crimes. And at least 20 more have had two or more malpractice judgments or settlements. This accounting is by no means complete; many state regulators don’t post these actions on their web sites.

In interviews and written statements, five of the seven companies acknowledged that they don’t routinely check state board websites for discipline against doctors. Instead, they rely on self-reporting and checks of federal databases. Only Johnson & Johnson and Cephalon said they review the state sites.

ProPublica found 88 Lilly speakers who have been sanctioned and four more who had received FDA warnings. Reporters asked Lilly about several of those, including Leak and McMillen. A spokesman said the company was unaware of the cases and is now investigating them.

“They are representatives of the company,” said Dr. Jack Harris, vice president of Lilly’s U.S. medical division. “It would be very concerning that one of our speakers was someone who had these other things going on.”

Leak, the pain doctor, and his attorney did not respond to multiple messages. The Ohio medical board voted to revoke Leak’s license in 2008. It remains active as he appeals in court, arguing that the evidence against him was old, the witnesses unreliable and the sentence too harsh.

In an interview, McMillen denied nearly all of the allegations in the FDA letter and blamed his troubles on a rival firm whose drug he had criticized in his presentations.

“I’m more cautious now than I ever was,” said McMillen, who said he also does research. “That’s why I think a lot of the companies use me. I’m not taking any risks.”

Taylor said that the allegations against him were “old news” from the 1990s and that regulators had not sanctioned him. “It had nothing to do with my skills as a physician,” said Taylor, noting that he speaks every other week around the country and sometimes abroad. “Even my biggest detractors in that situation lauded my skills as a physician. That’s what’s most important.”

Disclosures are just the start

Payments to doctors for promotional work are not illegal and can be beneficial. Strong relationships between pharmaceutical companies and physicians are critical to developing new and better treatments.

There is much debate, however, about whether paying doctors to market drugs can inappropriately influence what they prescribe. Studies have shown that even small gifts and payments affect physician attitudes. Such issues have become flashpoints in recent years both in courtrooms and in Congress.

All told, 384 of the approximately 17,700 individuals in ProPublica’s database earned more than $100,000 for their promotional and consulting work on behalf of one or more of the seven companies in 2009 and 2010. Nearly all were physicians, but a handful of pharmacists, nurse practitioners and dietitians also made the list. Forty-three physicians made more than $200,000 — including two who topped $300,000.

Physicians also received money from some of the 70-plus drug companies that have not disclosed their payments. Some of those interviewed could not recall all the companies that paid them, and certainly not how much they made. By 2013, the health care reform law requires all drug companies to report this information to the federal government, which will post it on the Web.

The busiest — and best compensated — doctors gave dozens of speeches a year, according to the data and interviews. The work can mean a significant salary boost — enough for the kids’ college tuition, a nicer home, a better vacation.

Among the top-paid speakers, some had impressive resumes, clearly demonstrating their expertise as researchers or specialists. But others did not –contrary to the standards the companies say they follow.

Forty five who earned in excess of $100,000 did not have board certification in any specialty, suggesting they had not completed advanced training and passed a comprehensive exam. Some of those doctors and others also lacked published research, academic appointments or leadership roles in professional societies.

Experts say the fact that some companies are disclosing their payments is merely a start. The disclosures do not fully explain what the doctors do for the money — and what the companies get in return.

In a raft of federal whistleblower lawsuits, former employees and the government contend that the firms have used fees as rewards for high-prescribing physicians. The companies have each paid hundreds of millions or more to settle the suits.

The disclosures also leave unanswered what impact these payments have on patients or the health care system as a whole. Are dinner talks prompting doctors to prescribe risky drugs when there are safer alternatives? Or are effective generics overlooked in favor of pricey brand-name drugs?

"The pressure is enormous. The investment in these drugs is massive,” said Dr. David A. Kessler, who formerly served as both FDA commissioner and dean of the University of California, San Francisco School of Medicine. “Are any of us surprised they’re trying to maximize their markets in almost any way they can?”

From drug reps to doc reps

For years, drug companies bombarded doctors with pens, rulers, sticky notes, even stuffed animals emblazoned with the names of the latest remedies for acid reflux, hypertension or erectile dysfunction. They wooed physicians with fancy dinners, resort vacations and personalized stethoscopes.

Concerns that this pharma-funded bounty amounted to bribery led the industry to ban most gifts voluntarily. Some hospitals and physicians also banned the gift-givers: the legions of drug sales reps who once freely roamed their halls.

So the industry has relied more heavily on the people trusted most by doctors — their peers. Today, tens of thousands of U.S. physicians are paid to spread the word about pharma’s favored pills and to advise the companies about research and marketing.

Recruited and trained by the drug companies, the physicians — accompanied by drug reps — give talks to doctors over small dinners, lecture during hospital teaching sessions and chat over the Internet. They typically must adhere to company slides and talking points.

These presentations fill an educational gap, especially for geographically isolated primary care doctors charged with treating everything from lung conditions to migraines. For these doctors, poring over a stack of journal articles on the latest treatments may be unrealistic. A pharma-sponsored dinner may be their only exposure to new drugs that are safer and more effective.

Oklahoma pulmonologist James Seebass, for example, earned $218,800 from Glaxo in 2009 and 2010 for lecturing about respiratory diseases “in the boonies,” he said. On a recent trip, he said, he drove to “a little bar 40 miles from Odessa,” Texas, where physicians and nurse practitioners had come 50 to 60 miles to hear him.

Seebass, the former chair of internal medicine at Oklahoma State University College of Osteopathic Medicine, said such talks are “a calling,” and he is booking them for 2011.

The fees paid to speakers are fair compensation for their time away from their practices, and for travel and preparation as well as lecturing, the companies say.

Dr. Samuel Dagogo-Jack has a resume that would burnish any company’s sales force: He is chief of the division of endocrinology, diabetes and metabolism at the University of Tennessee Health Science Center. Dagogo-Jack conducts research funded by the National Institutes of Health, has edited medical journals and continues to see patients.

While most people are going home to dinner with their families, he said, he is leaving to hop on a plane to bring news of fresh diabetes treatments to non-specialist physicians “in the trenches” who see the vast majority of cases.

Since 2009, Dagogo-Jack has been paid at least $257,000 by Glaxo, Lilly and Merck.

“If you actually prorate that by the hours put in, it is barely more than minimum wage,” he said. (A person earning the federal minimum wage of $7.25 would have to work 24 hours a day, seven days a week for more than four years to earn Dagogo-Jack’s fees.)

For the pharmaceutical companies, one effective speaker may not only teach dozens of physicians how to better recognize a condition, but sell them on a drug to treat it. The success of one drug can mean hundreds of millions in profits, or more. Last year, prescription drugs sales in the United States topped $300 billion, according to IMS Health, a healthcare information and consulting company.

Glaxo’s drug to treat enlarged prostates, Avodart — locked in a battle with a more popular competitor — is the topic of more lectures than any of the firm’s other drugs, a company spokeswoman said. Glaxo’s promotional push has helped quadruple Avodart’s revenue to $559 million in five years and double its market share, according to IMS.

Favored speakers like St. Louis pain doctor Anthony Guarino earn $1,500 to $2,000 for a local dinner talk to a group of physicians.

Guarino, who made $243,457 from Cephalon, Lilly and Johnson & Johnson since 2009, considers himself a valued communicator. A big part of his job, he said, is educating the generalists, family practitioners and internists about diseases like fibromyalgia, which causes chronic, widespread pain — and to let them know that Lilly has a drug to treat it.

“Somebody like myself may be able to give a better understanding of how to recognize it,” Guarino said. Then, he offers them a solution: “And by the way, there is a product that has an on-label indication for treating it.’’

Guarino said he is worth the fees pharma pays him on top of his salary as director of a pain clinic affiliated with Washington University. Guarino likened his standing in the pharma industry to that of St. Louis Cardinals first baseman Albert Pujols, named baseball player of the decade last year by Sports Illustrated. Both earn what the market will bear, he said: “I know I get paid really well.”

Is anyone checking out there?

Simple searches of government websites turned up disciplinary actions against many pharma speakers in ProPublica’s database.

The Medical Board of California filed a public accusation against psychiatrist Karin Hastik in 2008 and placed her on five years’ probation in May for gross negligence in her care of a patient. A monitor must observe her practice.

Kentucky’s medical board placed Dr. Van Breeding on probation from 2005 to 2008. In a stipulation filed with the board, Breeding admits unethical and unprofessional conduct. Reviewing 23 patient records, a consultant found Breeding often that gave addictive pain killers without clear justification. He also voluntarily relinquished his Florida license.

New York’s medical board put Dr. Tulio Ortega on two years’ probation in 2008 after he pleaded no contest to falsifying records to show he had treated four patients when he had not. Louisiana’s medical board, acting on the New York discipline, also put him on probation this year.

Yet during 2009 and 2010, Hastik made $168,658 from Lilly, Glaxo and AstraZeneca. Ortega was paid $110,928 from Lilly and AstraZeneca. Breeding took in $37,497 from four of the firms. Hastik declined to comment, and Breeding and Ortega did not respond to messages.

Their disciplinary records raise questions about the companies’ vigilance.

“Did they not do background checks on these people? Why did they pick them?” said Lisa Bero, a pharmacy professor at University of California, San Francisco who has extensively studied conflicts of interest in medicine and research.

Disciplinary actions, Bero said, reflect on a physician’s credibility and willingness to cross ethical boundaries.

"If they did things in their background that are questionable, what about the information they’re giving me now?” she said.

ProPublica found sanctions ranging from relatively minor misdeeds such as failing to complete medical education courses to the negligent treatment of multiple patients. Some happened long ago; some are ongoing. The sanctioned doctors were paid anywhere from $100 to more than $140,000.

Several doctors were disciplined for misconduct involving drugs made by the companies that paid them to speak. In 2009, Michigan regulators accused one rheumatologist of forging a colleague’s name to get prescriptions for Viagra and Cialis. Last year, the doctor was paid $17,721 as a speaker for Pfizer, Viagra’s maker.

A California doctor who was paid $950 this year to speak for AstraZeneca was placed on five years’ probation by regulators in 2009 after having a breakdown, threatening suicide and spending time in a psychiatric hospital after police used a Taser on him. He said he’d been self-treating with samples of AstraZeneca’s anti-psychotic drug Seroquel, medical board records show.

Other paid speakers had been disciplined by their employers or warned by the federal government. At least 15 doctors lost staff privileges at various hospitals, including one New Jersey doctor who had been suspended twice for patient care lapses and inappropriate behavior. Other doctors received FDA warning letters for research misconduct such as failing to get informed consent from patients.

Pharma companies say they rely primarily on a federal database listing those whose behavior in some way disqualifies them from participating in Medicare. This database, however, is notoriously incomplete.

The industry’s primary trade group says its voluntary code of conduct is silent about what, if any, behavior should disqualify physician speakers.

“We look at it from the affirmative — things that would qualify physicians,” said Diane Bieri, general counsel and executive vice president of the Pharmaceutical Research and Manufacturers of America.

Some physicians with disciplinary records say their past misdeeds do not reflect on their ability to educate their peers.

Family medicine physician Jeffrey Unger was put on probation by California’s medical board in 1999 after he misdiagnosed a woman’s breast cancer for 2½ years. She received treatment too late to save her life. In 2000, the Nevada medical board revoked Unger’s license for not disclosing California’s action.

As a result, Unger said, he decided to slow down and start listening to his patients. Since then, he said, he has written more than 130 peer-reviewed articles and book chapters on diabetes, mental illness and pain management.

“I think I’ve more than accomplished what I’ve needed to make this all right,” he said. During 2009 and the first quarter of 2010, Lilly paid Unger $87,830. He said he also is a paid speaker for Novo Nordisk and Roche, two companies that have not disclosed payments.

The drug firms, Unger said, “apparently looked beyond the record.”

Companies make their own experts

Last summer, as drug giant Glaxo battled efforts to yank its blockbuster diabetes drug Avandia from the market, Nashville cardiologist Hal Roseman worked the front lines.

At an FDA hearing, he borrowed David Letterman’s shtick to deliver a “Top Five” list of reasons to keep the drug on the market despite evidence it caused heart problems. He faced off against a renowned Yale cardiologist and Avandia critic on the PBS NewsHour, arguing that the drug’s risks had been overblown.

“I still feel very convinced in the drug,” Roseman said with relaxed confidence. The FDA severely restricted access to the drug last month citing its risks.

Roseman is not a researcher with published peer-reviewed studies to his name. Nor is he on the staff of a top academic medical center or in a leadership role among his colleagues.

Roseman’s public profile comes from his work as one of Glaxo’s highest-paid speakers. In 2009 and 2010, he earned $223,250 from the firm — in addition to payouts from other companies.

Pharma companies often say their physician salesmen are chosen for their expertise. Glaxo, for example, said it selects “highly qualified experts in their field, well-respected by their peers and, in the case of speakers, good presenters.”

ProPublica found that some top speakers are experts mainly because the companies have deemed them such. Several acknowledge that they are regularly called upon because they are willing to speak when, where and how the companies need them to.

“It’s sort of like American Idol,” said sociologist Susan Chimonas, who studies doctor-pharma relationships at the Institute on Medicine as a Profession in New York City.

“Nobody will have necessarily heard of you before — but after you’ve been around the country speaking 100 times a year, people will begin to know your name and think, ‘This guy is important.’ It creates an opinion leader who wasn’t necessarily an expert before.”

To check the qualifications of top-paid doctors, reporters searched for medical research, academic appointments and professional society involvement. They also interviewed national leaders in the physicians’ specialties.

In numerous cases, little information turned up.

Las Vegas endocrinologist Firhaad Ismail, for example, is the top earner in the database, making $303,558, yet only his schooling and mostly 20-year-old research articles could be found. An online brochure for a presentation he gave earlier this month listed him as chief of endocrinology at a local hospital, but an official there said he hasn’t held that title since 2008.

And several leading pain experts said they’d never heard of Santa Monica pain doctor Gerald Sacks, who was paid $249,822 since 2009.

Neither physician returned multiple calls and letters.

A recently unsealed whistleblower lawsuit against Novartis, the nation’s sixth-largest drug maker by sales, alleges that many speakers were chosen “on their prescription potential rather than their true credentials.”

Speakers were used and paid as long as they kept their prescription levels up, even though “several speakers had difficulty with English,” according to the amended complaint filed this year in federal court in Philadelphia.

Some physicians were paid for speaking to one another, the lawsuit alleged. Several family practice doctors in Peoria, Ill., “had two programs every week at the same restaurant with the same group of physicians as the audience attendees.”

In September, Novartis agreed to pay the government $422.5 million to resolve civil and criminal allegations in this case and others. The company has said it fixed its practices and now complies with government rules.

Roseman, who has been a pharma speaker for about a decade, acknowledged that his expertise comes by way of the training provided by the companies that pay him. But he says that makes him the best prepared to speak about their products, which he prescribes for his own patients. Asked about Roseman’s credentials, a Glaxo spokeswoman said he is an “appropriate” speaker.

Getting paid to speak “doesn’t mean that your views have necessarily been tainted,” he said.

Plus pharma needs talent, Roseman said. Top-tier universities such as Harvard have begun banning their staffs from accepting pharma money for speaking, he said. “It irritates me that the debate over bias comes down to a litmus test of money,” Roseman said. “The amount of knowledge that I have is in some regards to be valued.”

ProPublica Director of Research Lisa Schwartz and researcher Nicholas Kusnetz contributed to this report.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

In a demonstration of how perception can sometimes trump reality, Johnson & Johnson topped a list of companies perceived by American consumers as having the best reputations for corporate social responsibility (CSR) practices.

The Corporate Social Responsibility Index, developed by the Boston College Center for Corporate Citizenship and the Reputation Institute, attempts to measure how companies' reputations are affected by public perceptions of performance related to citizenship (the community and the environment), governance (ethics and transparency) and workplace practices.

The 2010 CSR Index is based on a survey of 7,790 online U.S. consumers conducted in January and February 2010.

Johnson and Johnson has since admitted - months after the CSR Index survey was conducted - that it misled regulators and consumers by using company-paid contractors to buy defective Motrin painkiller products from store shelves rather than announce a recall.

In testimony before a Congressional committee only two weeks ago, company CEO William Weldon said, “This was not one of our finer moments.”  The “phantom recall” is reportedly the subject of a U.S. criminal investigation and at least one shareholder lawsuit.

The 2010 CSR Index shows the following companies in the top 25 positions:

1. Johnson & Johnson
2. The Walt Disney Company
3. Kraft Foods Inc.
4. Microsoft
5. PepsiCo
6. Apple
7. Hershey Company
8. SC Johnson
9. Kellogg
10. Google
11. Caterpillar
12. Intel
13. Publix Super Markets Inc.
14. JC Penney
15. Green Mountain Coffee Roasters
16. Campbell Soup Company
17. Marriott International
18. Anheuser-Busch InBev
19. UPS
20. Adobe
21. AmerisourceBergen
22. General Mills
23. Clorox
24. Eastman Kodak
25. Fidelity Investments

Companies with the largest year-over-year gains in the Index’s top 50 companies included Johnson & Johnson, Apple, Caterpillar, Intel, Adobe, Dell, AMD, Unilever, Goodyear, Dunkin’ Brands, Texas Instruments and Starbucks.

“Looking at the rankings by industry sectors, it appears the public has positive attitudes about companies that provide them with creature comforts,” with the beverage, consumer products and food manufacturing industries topping the rankings, the Index report said. Companies that fell most in the Index ratings “were in industries plagued with larger reputation challenges” such as automotive and financial services, according to the report.

The report said that many of the companies in the leading industry sectors “are also successful communicators of their CSR efforts and link those efforts with their brand. Communicating about corporate citizenship efforts becomes even more important in an age of skepticism when only two in 10 consumers trust what companies say in their advertising.”

The allegation that BP put profits ahead of the environment shouldn’t be a surprise. In fact, BP’s failure to stop the worst oil spill in U.S. history is indicative of a much larger problem with companies that have embraced one of the central ideas in management today: stakeholder theory. The idea that companies can meet the needs of “stakeholders” leaves them open to moral abuse without normative principles at its core.

It was R. Edward Freeman’s 1980 book Strategic Management: A Stakeholder Approach that developed stakeholder theory into management practice arguing for a widening of managerial focus away from the exclusivity of stockholders to include any individual or group having an interest or is affected by organizational activity. In its broadest terms, stakeholder theory helps managers create organizational mechanisms and procedures for dealing with social issues in a proactive, rather than a reactive, way of achieving economic gains.

Stakeholder theory includes environmental stewardship under its rubric, since the environment can be affected by corporate activity. And many companies pay homage to the environment as stakeholder in their glossy reports. BP does likewise. In their 2009 sustainability report they state, “At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support of our customers, shareholders and the communities in which we operate.”

Stakeholder theory is massively popular but without strong normative principles as its foundation, it can be usurped by short-sighted self-interested initiatives leaving ethical considerations excluded from managerial analysis. The oil spill in the Gulf of Mexico by British Petroleum is one such example.

Preliminary results into the cause of the Gulf spill, according to BP, reveal significant failures of equipment designed to prevent a blowout. To what extent and when BP knew of this equipment failure is unclear, but eyewitness evidence from rig workers claim that BP knew weeks before the blowout that equipment was malfunctioning. Despite BP being unaware of the technological malfunction, according to stakeholder theory, they would have still had to weigh potential equipment failure and environmental harm against cost and profit. From a strategic management approach, BP would have to consider the natural environment as a stakeholder and take steps to incorporate environmental components into their goals, strategies, and structures as a way of achieving an overall company approach.

But what is lacking is the ethical content within BP’s strategic environmental management system. Stakeholder theory would correctly identify the environment as a stakeholder but it provides no guidance regarding the ethics of how or what we ought to do in order to protect the environment. From a moral point of view, BP ought to have stopped drilling and fixed the blowout preventer before continuing even if it meant losing money. After all, morality tells us the “right thing to do” often requires us to forgo our own self-interest for the good of others. However, from a stakeholder perspective, nothing requires BP to stop drilling so long as they consider the interests of all stakeholders relative to their own interests. A moral point of view would require a manager to look at other sources for inspiration, such as philosophical arguments, to determine if polluting the ocean with oil is ethically legitimate.

Stakeholder theory has many advantages; it allows managers great flexibility to “balance” the “interests” of various groups, individuals, or even the natural environment for mutual gain; it also provides managers clear strategies for dealing proactively with potential negative issues. However, it is still fraught with problems. First, balancing stakeholders is difficult. Determining who is a stakeholder with legitimate interests, given the countless groups and individuals monitoring a firm’s activity, requires a level of analysis that most managers don’t have time for.

Second, assessing stakeholders is often based on descriptive, not normative, assumptions. Who is a stakeholder and who ought to be a stakeholder need not be the same; self-interested biases often blind managers to who they ought to include in their analysis but don’t.

Third, individuals are often members of more than one stakeholder group and it is unclear how this is to be included into the calculation.

Fourth, “balanced” is an especially vague term, falling outside of an objective decision-making methodology. Consider BP, once again. The investigation into the Deepwater Horizon drill rig explosion is accusing BP executives of putting drilling costs ahead of well safety in order to save time and money. Executives agreed to give more weight to cost saving and future profits than environmental considerations, the wholesale loss of the seafood industry, and decades of decimated oceans for future generations. But we shouldn’t be surprised. Given the financial pressures on employees and executives, it is difficult to assume that they will make “balanced”, let alone ethical, decisions under stakeholder theory. The justification of one stakeholder over another usually favours the shareholder, thus creating an unrealistic attempt to “balance” with any success.

But we shouldn’t be pessimistic. Stakeholder theory is not inimical to ethics; establishing an ethical culture within organizations with strong ethical leadership must be at the center of any stakeholder assessment. Merck’s helping cure river blindness and its more recent voluntary withdrawal of Vioxx; Johnson & Johnson’s removal of Tylenol capsules after some were tampered with cyanide; Interface’s environmental sustainability; Home Depot’s work with the Forestry Stewardship Council; and Nike’s commitment to improving labor standards overseas, are just a few examples of how normative standards can play a role in dealing with stakeholders and the ethical issues they present.

Perhaps the greatest advantage of stakeholder theory, once normative principles are incorporated into organizational decision-making, is that it allows managers to give an unbalanced or biased weighting of issues in order to preserve ethical integrity. That is, it gives managers permission to put other stakeholder interests ahead of shareholders as a way of making the ethical choice for long-term, not short-term, gain. BP should have heeded this advice. Putting the environment ahead of well-costs could have saved BP billions and potentially the company itself.

Stakeholder theory can help managers solving ethical problems, such as the environment, and gives managers a practical framework for assessing and balancing interests so long as normative principles are the foundation upon which decisions are made. If only BP had taken this advice to heart.

Dr. David Ohreen is an Assistant Professor at the Bissett School of Business, Mount Royal University, Calgary, Alberta.

Photo: Copyright BP.

I heard a CEO recently say that his company has had a compound annual growth rate for sales of 29% since 1978 and an employee turnover rate of about 5% compared to an industry average of 110%. Those are numbers that get your attention.

When the same CEO talks about the trust that has been built in business relationships and characterizes the energy felt in the company as “joyful,” it is pretty evident his company isn’t Toyota, Goldman Sachs, Massey Energy, BP or a number of other companies that have recently been working out of crises.

Actually, he is talking about The Container Store. While many companies tout the importance of their people, Chairman and CEO Kip Tindell explains that for the Container Store “putting employees first is a profit strategy.” Employees are the #1 stakeholder. Paid 50% to 100% above industry average, Tindell says they receive about 240 hours of training compared to the industry average of seven hours. “You have to have a high level of service,” he explains, “to sell empty boxes.”

At the heart of his comments is the importance of the Foundation Principles Tindell created when Container Store was 10 years old and expanding. He wrote the principles so that new employees could better understand the culture. One of the principles is “communication is leadership.” He uses words like “consistent, reliable, predictable, effective, thoughtful, compassionate and courteous” to describe what communication looks like in the company. He says unabashedly, “We tell employees everything.”

Tindell characterizes the relationship with employees, suppliers and customers as being fun for everyone, where everyone is engaged. A byproduct, he feels, is that people identify with the brand so much they feel a part of it, passionately interested in helping the Container Store succeed. That was evident, for example, during the worst of the recession when suppliers gave the company better deals than they did others.

Tindell shared his stories at a conference on Conscious Capitalism at the end of May 2010 sponsored by the Conscious Capitalism Institute (CCI)  and Bentley University. He was joined by Gary Hirshberg, founder and CE-Yo (yes, that’s the title) of Stonyfield Farms,  which is the world’s largest organic yogurt producer, and Doug Rauch, who served as president of Trader Joe’s for the last 14 years of his 31 years with the company.

Stories about how purpose drives the business, how customers connect with the emphasis put on saving the environment, and how customers and employees are treated begin to create a different definition of “business as usual” for these companies.

Hirshberg tells those in attendance that he started Stonyfield 27 years ago with a question: “Is it possible to create an enterprise where everybody wins?” Stonyfield’s compound annual growth rate of over 24% in the last 18 years has successfully blended the company’s social, environmental and financial missions, he says. Trader Joe’s, explains Rauch, operates a purpose-driven business where employees know their opinions, as well as their advancement, matter; customers have made it more profitable than Whole Foods.  (John Mackey, Whole Foods Co-CEO, is also one of the leaders of the Conscious Capitalism movement.)

CCI, established a year ago, needs a broader array of stories going forward from leaders in other industries to illustrate the principles of companies driven by more than profit making a difference in the world. CCI wants to be the “knowledge hub” for the movement offering collaboration between corporations, research faculty at business schools, and thought leaders from consulting organizations.

Obviously, the idea behind a purpose-driven company didn’t start with Conscious Capitalism. Decades ago companies like the ones mentioned and others like Johnson & Johnson, Levi Straus, the Body Shop, and Ben & Jerry’s created strong brand loyalty around the quality of their products, loyalty to their customers, and the commitments they made to the world in which they lived. Fathers and mothers of operating with clearly expressed values and modeling the benefits of corporate social responsibility, they created a higher playing field for business.

However, as James O’Toole of the Daniels College of Business, University of Denver pointed out at the conference, a virtuous company is hard to sustain over time and especially if leaders change. Companies like Johnson & Johnson, Xerox, and Herman Miller are still around and their commitments regarding how they want to operate are intact even if interrupted or watered down at various times.

O’Toole, Daniels Distinguished Professor of Business Ethics, raised a critical question CCI and others will need to address: How can a “virtuous company” be made to last beyond its founder’s involvement with the company?

Conscious Capitalism is emerging at a time when how business operates is at a crossroad. It advances an approach by which a company can be profitable while also safeguarding trust, reputation, and credibility with stakeholders. It supports leaders in achieving their human potential and through that their business potential.

Raj Sisodia, co-founder and chairman of CCI and a professor of marketing at Bentley University, observes that traditional leadership models have outlived their usefulness. “The more self-actualized people become, the more we’ll need self-realized leaders who demonstrate mastery of serving some higher purpose and choosing right action.”

Conscious Capitalism is also at a crossroads. If it can learn from the success and missteps of other movements its voice will have more weight. It will need to determine what is a realistic bar for companies to measure themselves against as CCI seeks to change the way companies do business.

It will also need to address how founders pass on their purpose-driven passion to successors, and beyond that, how, from CEO to the next leader, cultures can maintain the focus on operating from a purpose bigger than delivering profit to shareholders, while keeping employees engaged, customers loyal, trust high, and reputation and financial strength intact.

In developing relevant research and providing a credible forum for the stories that demonstrate what is working and what isn’t, CCI has the opportunity to shape the future of the movement. It is a tall order but more than most people the leaders of Conscious Capitalism subscribe to the notion that the greatest opportunities emerge from the biggest challenges.

Gael O’Brien joins Business Ethics as a columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column at http://theweekinethics.wordpress.com

Toyota’s announcement of a technical fix for its sticky gas pedals – which can lead to sudden acceleration problems - is not likely to bring a quick end to the company’s current recall nightmare.

Having already halted sales and production of eight of its top-selling cars in the U.S. - and recalled more than 9 million cars worldwide, in two separate recalls – Toyota faces the prospect of billions of dollars in charges and operating losses. The Toyota brand, once almost synonymous with top quality, has taken a heavy hit.

While all the facts are not yet in, it’s clear that Toyota’s crisis didn’t emerge full-blown overnight.   Fixing the problem and ensuring that something like it doesn’t happen again will require an all-out effort, from assembly line to the boardroom.  Even then, there are no guarantees. Maintaining a good corporate reputation in the 21^st century is tricky business indeed.

Toyota’s case offers a number of valuable lessons for other business people and companies to consider.  Here, for starters, are five:

Aggressive growth can create unmanageable risk. Toyota’s desire to supplant General Motors as the world’s number-one car-maker pushed it to the outer limits of quality control.

“The evidence that Toyota was expanding too much and too quickly started surfacing a couple of years ago.  Not on the company's bottom line, but on its car-quality ratings,”  writes Paul Ingrassia, a Pulitzer Prize-winning former Detroit bureau chief for The Wall Street Journal.

Ingrassia, who has just authored a new book on the auto industry, notes that in 2005 Toyota recalled more cars and trucks than it sold; by 2007, Consumer Reports magazine stopped automatically recommending all Toyota models because of quality declines on three models.

One wonders if, when accepting management’s plan for aggressive growth, Toyota’s board of directors exercised appropriate diligence to ensure that growth could be achieved without betting the entire franchise.  Were quality control and safety part of the discussion?  Maybe gaining market share wasn’t worth the trade-off.  Quick tip to directors of other high-growth-oriented companies: read up on Merrill Lynch’s experience with dominating the sub-prime mortgage market.

Get the facts quickly and manage your risks aggressively. One of the more troubling aspects of Toyota’s recalls (there have been two) has been the company’s differing accounts of the source of the problem.  The current recall, covering 4.1 million cars, involves potentially sticky gas pedals.  Late in 2009, Toyota also recalled 5.4 million cars whose gas pedals could get stuck on floor mats.  Plus, Toyota says there are some cars affected by both problems.  (For an interesting technical analysis of some of the issues involved, go here.)

Uncertainty is not an asset, especially when lives could be at stake.  A Los Angeles Times investigation, for example, casts doubt on Toyota’s explanation, quoting one auto safety consulting group as saying, "We know this recall is a red herring."  (Read Toyota’s position here.)

And the questioning is just beginning.  A U.S. Congressional committee headed by Rep. Henry Waxman has already requested copies of emails and other documents from both Toyota and the National Highway Traffic Safety Administration, which regulates Toyota with regard to the recalls.   Congressional hearings are scheduled for Feb. 25.

In cases such as this, investigators almost always start with two time-worn questions.  What did you know?  And when did you know it? Answers to those questions provide the groundwork for analysis of a company’s response and handling of a problem.  Were employees encouraged to flag safety issues to senior management?  Were sufficient resources devoted to investigating the problems?   When did the board become aware of the situation and what did it do about it?

Companies generally can’t predict when crises might occur.  However, good internal risk assessment programs can help identify those areas of the business where management should be on the alert.   Robust risk management programs help a company address problems as they pop up on the internal corporate radar screen – and before they explode in public.

Your supply chain is only as strong as your weakest link. The reality is that auto companies make hardly any of their parts.  They assemble cars from parts made by others.  In this case, the offending gas pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana.

It’s far from certain how much blame the parts supplier deserves.  In fact, CTS says Toyota’s acceleration problems date back to 1999, years before CTS began supplying parts to Toyota. (And the replacement gas pedal parts Toyota has announced as a fix for the problem will be made by CTS, suggesting a degree of confidence in the supplier.)

Nonetheless, “(if) you are outsourcing for your entire vehicle line, [and] the outsourced component is defective, the recall and the embarrassment is much greater,” iconic car company critic Ralph Nader told Toronto’s Globe and Mail last week. “The overall message is that quality control [means] daily vigilance,” Nader said. “You can't coast on your reputation because it can fail very quickly.”

Supply chain monitoring is a critical factor for companies that rely on third-party suppliers. That’s increasingly true for a broad variety of industries, not just automobiles, as business grows ever more global.  Smart companies will know their suppliers and their respective strengths and weaknesses.

Accept Responsibility.  This is one area where Toyota seems to be doing a good job, albeit maybe a year or more too late.

Toyota's National Ad on Recall - January 31, 2010

Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it was the driver’s fault,” David Cole, Director of the Center for Automotive Research, told Design News.  Coles says that reaction ultimately hurt Audi’s reputation.

Toyota seems to be avoiding the appearance of passing the buck.  When pressed by the New York Times about problems that might have been caused by supplier CTS, for example, Toyota spokesman Mike Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has always been that Toyota is responsible for the cars.”

Accountability matters enormously.   Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis management.  But that recall stemmed from the deadly act of an outsider (who has never been caught), not any problem with the product itself, as is the case with Toyota.

Take the Long View. The three leading factors burnishing corporate reputation these days are "quality products and services, a company I can trust and transparency of business practices,” writes public relations executive Richard Edelman, who last week released his corporate “Trust Barometer” survey for 2010.

That’s unfortunate news for Toyota, given the hand that it’s currently playing.  But the company doesn’t have much choice.  By one estimate, auto industry recalls conservatively cost an average of $100 per car - suggesting that Toyota might be on the hook for at least a one billion dollar charge.   That doesn’t include lost revenue to Toyota and its dealers from the production shutdown.  And competitors are already trying to woo customers away and capitalize on Toyota’s misfortune.  Disgruntled investors and Wall Street analysts will make the company aware of their feelings; class action lawsuits are almost a certainty (one lawyer is already searching for Toyota customers as clients).

Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely.  And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis.  The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades.  That reputation is a valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months ahead.