Good corporate citizenship means taking the long view.

Research by Daniel Caunter, James Francis, Toby Heaps, Jon-Erik Lappano, Melissa Shin, Bernice Tong, Renee Tong, and Ramsey Wright for the Best 50 Corporate Citizens.

Our Best 50 Corporate Citizens ranking methodology strives to evaluate the qualities behind a company with a true connection to the people and places it employs, affects, and serves—a company that appreciates that a social license to operate must be constantly renewed. Now, it turns out that the financial metrics to which we attach the greatest weight are the ones making the news in a time of economic turmoil. This year, our indicators were vindicated.

Failing to prudently fund defined-benefit pension plan has produced shortfalls, which are crippling companies across North America. Our pension health indicator reveals just how much a company was willing to gamble with its employees’ future benefits based on unrealistic returns that have now disappeared. A company that once hoped sky-high returns would bolster its skimpy pension plan assets must now divert cash away from operations just to pay its pension obligations.

Another metric we’ve always known to be important is cash tax payments—how much a company actually pays versus how much it owes according to statutory tax rates. According to American think tank RAND Corp., despite rising incomes, corporate income taxes represented just 9.6 per cent of US federal tax revenues between 2000 and 2009. RAND believes that income tax avoidance will be “corporate America’s
next big scandal.” Canadian companies pay only slightly more than their southern counterparts (corporate taxes constituted 14 per cent of tax revenue in fiscal 2005-2006), but the best corporate citizens don’t shy away from tax obligations. With the G-20 countries committing in April 2009 to crack down on tax havens, citing up to $7 trillion in funds held offshore to avoid taxes, it’s clear that aggressive tax minimization portends potential future liability.

The TSX60’s income tax gap has closed only slightly, but profits took a beating—a decrease of $7.5 billion from last year. But directors of TSX60 companies are better representing Canadian demographics, and TSX60 sustainable development-related board committees are up.

Again this year, we could not find a single female CEO at any TSX60 company. This is a problem, says professional services firm Ernst and Young (E&Y). Their May 2009 report, Groundbreakers, suggests the best way out of the current global economic crisis is to increase diversity in corporate leadership in order to avoid the “groupthink” that brought down economies across the world.

“Canada and the world need business leaders who bring different skills, who think about familiar problems in new ways,” says E&Y chair and CEO Lou Pagnutti. The report cites Goldman Sachs data, which found hiring men and women equally could boost American GDP by up to 9 per cent, European GDP by 13 per cent, and Japanese GDP by 16 per cent.

Luckily, on the gender front, our Best 50 universe goes beyond the TSX 60. Laura Formusa heads this year’s top Corporate Citizen, Hydro One. In fact, our Best 50 list includes three other female-headed companies (Vancity, Canada Post, and Desjardins). Another commonality in our Best 50? At least 14 of our Best 50 companies are or once were structured in ways that explicitly defined a public mandate; if you include the chartered banks in our ranking, over a third of our Best 50 is or has been directly accountable to the public. These companies are better at producing stakeholder value. Since they aren’t as subject to the tyranny of quarterly expectations and the vagaries of the short-termist shareholder model, these companies can afford to take a long-term perspective when it comes to taxes, pensions, labour relations, governance, and environmental and social concerns.

And these companies tend to be sheltered against corporate takeovers from abroad; Petro-Canada, soon to merge with Suncor, was long protected by legislation designed to keep the former Crown corporation here at home. But since our first ranking in 2002, we’ve seen lots of former Canadian strongholds absorbed into global conglomerates—and with little opposition. If this trend continues, Canada will soon be left with only utilities, a smattering of family dynasties, and financial companies, along with declining tax income, fewer corporate decision-makers, and less research and development.

In response, Corporate Knights now examines foreign-based companies with significant operations in Canada in a separate assessment called the Top Foreign Corporate Citizens in Canada. In years past, we ranked these companies using parent company financial information (the only publicly available data), but put a strong weight on Canadian information for the key performance indicator (KPI) ranking. With the differences in size between foreign-based and Canadian-based companies, and increasingly global sustainability reporting that rarely focused on Canadian operations, it became clear that the Best 50 Corporate Citizens in Canada had to focus on Canadian-based companies.

For example, while perennial Best 50 company Alberta-Pacific Forest Industries has about 500 employees and operates primarily in Alberta, its parent company, Mitsubishi, has over 60,000 employees and operates in 80 countries. And comparing a global conglomerate like Centrica (parent of Direct Energy) to a local utility like Calgary-based ENMAX no longer makes sense. You’ll find our Top Foreign Corporate Citizens here. To carry on the analysis done in our inaugural Aboriginal-themed issue (Vol. 7.4), we’ve also included Aboriginal relations as a KPI for the extractive sectors (forestry, mining, oil and gas, utilities), and Aboriginal banking as a KPI for the financials sector. Eventually, we hope to include Aboriginal relations as a KPI for all sectors.

Our ranking criteria continue to evolve to reflect the shifting Canadian corporate landscape. And the Best 50 Corporate Citizens will continue to be the companies who concern themselves with long-term stakeholder (not just shareholder) value—sustainability in every sense of the word—instead of simply aiming for quarterly gains. Companies who don’t forget that a corporation is, at its core, a provisional member of our society whose passport is renewed annually, as long as it serves a useful and necessary purpose.

See the results and analysis here.