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  • Writer's pictureKaty Sperry

Do Company Ethics and Stakeholder Focus Equal Greater Long-Run Shareholder Profits?

Updated: Sep 19, 2022

Torrey Project’s Evaluation of the Financial Performance of Highly Ethical Companies and Stakeholder-Focused Companies

By: David J. Ferran, CEO Torrey Project, and Katy Sperry, Director of Marketing


Does more ethical behavior correlate with higher long-term growth in stock prices? This study seeks to answer that question by examining the long-term historical performance of different sets of companies including the S&P 500, Jim Collins’ “Good to Great” companies, Raj Sisodia’s stakeholder-focused “Firms of Endearment” and Ethisphere’s 2019 “Most Ethical Companies.”

After comparing these 4 sets of companies’ financial performance on the NASDAQ and NYSE over the past 20 years, we found that while Ethical Companies do enjoy a higher level of stock price growth (50% higher than that of the S&P 500 over the same period), stakeholder-focused companies (Sisodia’s Firms of Endearment) had the highest growth of all in stock price (100% higher than that of the S&P 500 over the same period).

This leads us to two conclusions. First: ethical business behavior correlates with high financial returns. Second: companies that take things one step further and adopt a stakeholder-focused model (that explicitly serves employees, customers, suppliers, business partners, investors, local communities, the environment, and society) have historically shown even higher returns than standard ethical companies.

This data supports Torrey Project’s thesis that a stakeholder approach to business goes hand in hand with higher financial returns for investors.

Introduction to Ethisphere’s Most Ethical Companies

On February 26, 2019, Ethisphere published its annual report on the World’s Most Ethical Companies. For over 10 years Ethisphere has utilized its deep expertise in advancing business performance through data-driven assessments to benchmark the ethical performance of companies around the globe.

This year Ethisphere selected 128 honorees representing 21 countries and 50 industries. These companies were evaluated across multiple categories covering; the quality of their “ethics and compliance” programs, organizational culture, corporate citizenship, governance, leadership, and reputation. 48 of these companies are traded on either the NYSE or the NASDAQ, making their financial performance easy to analyze.

Torrey Project’s Question: Do Ethical Companies Have Outsized Financial Returns Over the Long Run?

We at Torrey Project decided to look at the data to see if the most ethical companies demonstrate outsized financial returns over the long-term, which we defined as being the past 20 years.

Accordingly, we set out to compare the historical financial performance of the newly selected most ethical companies to three other groups of companies: the S&P 500, the 9 remaining publicly traded companies highlighted by Jim Collins in his best-selling book Good to Great, and the 28 companies that Dr. Raj Sisodia studied in his outstanding book Firms of Endearment.

To do this, Torrey Project commissioned and directed a study conducted by independent research analyst, Quanhui Liu. A summary of the results of this work is shown in the graph below and data tables are attached for further review.

Details on Torrey Project’s analytical approach 

The first stage was data collection. We used the Yahoo Finance API to gather the daily closing price of stocks of interest along with the S&P 500 from Jan 31, 1999, to Jan 31, 2019. Companies that are no longer trading were excluded. The excluded companies are LinkedIn, Panera, Whole Foods Market, and Circuit City Stores.

There were 3 pulls of the data set:

1. The 48 US publicly traded companies (NYSE and NASDAQ) that are on the 128 most ethical companies list (Ethical Companies)

2. The 18 companies that are mentioned in the book Firms of Endearment (FOE)

3. The 9 still-trading companies from the book Good to Great (G2G)

The second stage was data wrangling. We down-sampled the daily closing price to monthly by taking the sample point on the first day of each month and then using the first data entry of each stock as the baseline, we got the percent of monthly change for each stock. The aggregated mean for each of our groups of interest (Ethical Companies, FOE, and G2G) was calculated by summing each stock’s percentage change in price for a given month and then averaging the percentage changes in price over the number of stocks in the group for each month. 

The last stage was the visualization stage graphically showing the FOE, G2G, and US publicly traded ethical companies benchmarked against the S&P 500 as a point of reference. This is shown in the results section below.

The Results: Stakeholder Focused > Ethical > S&P 500 Average

As can be seen in the graph above, the performance of the Good to Great companies have essentially mirrored the performance of the S&P 500 over the past 20 years, with the G2G companies slightly outperforming the S&P 500 for most of the 20 years, but recently falling behind. Both the G2G companies and the S&P 500 have essentially doubled in value from 1999 to 2019.

The group of 48 “Highly Ethical” companies traded on the Nasdaq or NYSE significantly outperformed both the Good to Great companies and the S&P 500, essentially tripling in value over the 20-year period.

As a final comparison, we looked at the performance of the Highly Ethical companies traded on NASDAQ or NYSE against the 28 companies identified by Dr. Raj Sisodia in Firms of Endearment. What we saw was somewhat shocking. Despite the relatively outstanding performance of the Highly Ethical Companies when benchmarked against S&P 500 companies, the Ethical Companies' performance paled in comparison to the financial performance achieved by the Firms of Endearment companies that fully embrace the more enlightened form of capitalism known as Stakeholder capitalism or Conscious Capitalism.

The 28 stakeholder-focused companies identified by Sisodia quadrupled in shareholder value over the 20-year period, generating 50% higher returns than the Ethical Companies and 100% higher returns than the G2G or S&P 500 benchmarks.


This work adds to a growing body of evidence that clearly suggests that corporate financial performance improves when corporate leadership embraces sound business ethics and a commitment to serving all company stakeholders. The data shown herein demonstrate that operating businesses in a highly ethical way clearly leads to an increase in financial performance. It also clearly shows that going one step beyond simply being ethical, and adding to it a commitment to serving employees, customers, suppliers, business partners, local communities, the environment, and society can, and does, yield even higher returns for investors.

The days of cut-throat conventional capitalism are coming to an end, not because CEOs and Board Members are getting nicer in their old age but because of the clear and indisputable evidence that R. Edward Freeman was right when he said that “the companies that look out for all of their stakeholders are going to make more money for their shareholders than the ones that simply focus on short term profits.” There is tremendous wisdom in Mr. Freeman’s teachings and the evidence is piling up. It’s time for more CEOs and board members to pivot towards a more profitable and sustainable approach to business, one that includes the best interest of all stakeholders.

Giving credit where credit is due

Torrey Project is thankful to Ethisphere for their tireless and tremendous work in shedding light on the topic of corporate ethics. Torrey Project also wants to acknowledge and congratulate this year’s 128 honorees. While the world desperately needs even more ethical companies and ethical leaders we wish to pause and give thanks to those leaders who have already raised the banner of ethics and have joined in calling for business to become a force for good in the world.

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