Mining for Gold Standard Companies

The last few years of stock market bullishness will likely come to a screeching halt when people realize that the United States' economic malaise just can't sustain the run-up many stocks have enjoyed. In these uncertain times, investors who buy and hold shares in poorly run, mediocre, or even downright unethical companies have a lot to lose. With a market backlash looming, investors should instead consider building an ethics-driven portfolio. Investing in gold standard companies could save their investment returns from the wages of sin -- and suckage.

In search of the most ethical
To dig for companies that thrive and profit through the golden rule, take a look at the Ethisphere Institute's list of The World's Most Ethical Companies for 2011.

Ethisphere honored 110 companies this year, including 36 newbies -- a hopeful sign that more companies are taking their desire to be good companies seriously. On the other hand, 26 companies that made last year's list missed the cut this year, because of factors like litigation, ethics violations, or industry competition.

Identifying the most responsible, ethical companies can be a squishy, subjective business. Even if investors don't agree with Ethisphere's particular picks, they can likely appreciate its efforts to quantify honest corporate behavior. (Here's a full explanation of how Ethisphere picks its honorees.)

Ethisphere's 2011 list does include some private companies. However, the list also spotlights many interesting publicly traded companies as well, from well-known names such as PepsiCo (NYSE: PEP  ) and General Electric (NYSE: GE  ) to more obscure businesses such as Ecolab (NYSE: ECL  ) .

These days, financial companies and energy firms probably rank rock-bottom on consumers' own lists of good corporate citizens. In April, The Consumerist ran a real nail-biter of a showdown between BP (NYSE: BP  ) and Bank of America (NYSE: BAC  ) for the dubious honor of The Worst Company in America. However, Ethisphere even found a few companies in these besmirched sector to laud, saluting American Express and NextEra Energy, among others.

Going for the gold, getting rid of the brass
No one can craft a perfect method for conscientious investing, as the companies that vanished from Ethisphere's list between 2010 and 2011 prove. The Mark Hurd scandal probably goes a long way toward explaining Hewlett-Packard's (NYSE: HPQ  ) expulsion.

Google's (Nasdaq: GOOG  ) gone, too. For all the good Google does, privacy concerns and a looming FTC investigation have given responsible investors a bit more pause over the past year. (Only lonely Zappos won plaudits in Ethisphere's Internet sector this year.)

However imperfect Ethisphere's measurements may be, its attempt to seek the most ethical companies can double as a solid defensive investment strategy in an equally imperfect world. Ethisphere's own data backs up that assumption; its honorees have soundly beaten the S&P 500's returns since 2007, clocking roughly 45% average gains since.

Gold symbolizes solidity, strength, and durability. In today's shaky economy, Fools might be wise to invest companies that embody that same sort of shining surety and security.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

The Motley Fool owns shares of PepsiCo and Google. The Fool owns shares of and has opened a short position on Bank of America. Motley Fool newsletter services have recommended buying shares of PepsiCo and Google, as well as creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned in her personal portfolio. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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