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AMERICA'S MOST ADMIRED COMPANIES
The Right Stuff
After 20 years of FORTUNE's Most Admired list, we look back at how--and why--the qualities you admire have changed.
Monday, March 4, 2002
By Matthew Boyle
Mystery shrouds it. Academic studies have been done on it. Investment decisions are prompted by it. We even know that the bonuses of some corporate PR executives have been based on it.
It's FORTUNE's list of America's Most Admired Companies, and this is its 20th-anniversary year. Across two decades, our survey has taken on an exceedingly difficult task: to grab hold of that nebulous, ineffable something that certain companies have and others would kill to possess--and quantify it. Shakespeare's Richard II called reputation "the purest treasure mortal times afford," and like any treasure, it's not easy to find, especially lately. It's also darned easy to lose (we're talking to you, Enron).
When FORTUNE started the list in the early '80s, the world was a simpler place. The business people we polled tended to admire large companies that had been around a long time (an average of 88 years for 1983's top ten), made basic stuff we used every day (film, cereal, phones), and had headquarters someplace established and old-money, like New York or Connecticut. They were the bluest of the blue chips, the Establishment--companies like AT&T, Eastman Kodak, and General Mills. "In those days it was enough to be big," says John Browne, director of the reputation-assurance practice at PricewaterhouseCoopers. "People admired them, and that was it."
Consider IBM, which topped our list for the first four years. Even when we noted "recent untoward movements in IBM's formidable stock" in 1984, and even as the company failed to address fading demand for its mainframes and increased competition in the PC industry, Big Blue kept scoring the No. 1 slot purely by dint of its sterling reputation. Though it began a three-year earnings slump in 1985, IBM remained among the top ten until 1988--at which point it fell like a rock, dropping all the way to No. 354 by 1994, just below Kmart (ouch).
In the late '80s and early '90s we began reserving our highest admiration for companies that scored for shareholders--companies like Merck, Wal-Mart, and Rubbermaid, whose CEO from 1980 to 1991, Stanley Gault, promised 15% growth in revenues, profits, and earnings per share, and delivered year after year. From 1988 to 1991, returns for the top ten in the 12 months following publication of each list consistently beat those of the S&P 500, a feat that the top ten usually--but not always--have been able to pull off. We revered stock performance so much, in fact, that we began caring less about other attributes of reputation, like innovativeness and responsibility to the community and environment. Our survey respondents even put tobacco companies RJR Nabisco and Philip Morris in the top ten for a couple of years--after all, their numbers were smokin'!
As the '90s wore on, the explosion of business programming across all media, including the nascent Internet, helped such chief execs as Coca-Cola's Roberto Goizueta, Microsoft's Bill Gates, and Disney's Michael Eisner win the kind of fame normally reserved for athletes and movie stars. And what we thought of them increasingly shaped what we thought of the companies they led. "The persona of the CEO became shorthand for the persona of the company," says Jeffrey Sonnenfeld, head of the Atlanta-based Chief Executive Leadership Institute. As Warren Buffett put it when musing about 1998's top ten list, which included General Electric, Southwest Airlines, and his own Berkshire Hathaway, "People are voting for the artist, not the painting."
In fact, recent research from PR giant Burson-Marsteller has found that CEO reputation can constitute almost half of a company's overall reputation. That helps explain why, although GE wasn't No. 1 in shareholder returns among the top ten in 1998--it was only No. 6--the company took the top spot. People loved Jack Welch, and that was more than enough.
So where are we now? Call it a transitional era. On the one hand, who your CEO is matters little if your stock is charging ahead. On the other hand, celebrity CEOs haven't disappeared; Spencer Stuart Chairman Tom Neff still thinks that a company needs one to get voted onto the Most Admired list.
But in these more sober, post-bubble, post-Enron times, says Leslie Gaines-Ross, chief knowledge officer at Burson-Marsteller, we value character and credibility a whole lot more than charisma. We also increasingly value the bench strength behind the CEO, something that companies often overlook until they need a successor. Depth of management is one reason GE, Southwest Airlines, Wal-Mart, and Home Depot are still hitting the top ten after their famous CEOs have stepped aside.
Another recent change, says Paul Argenti, professor of management at Dartmouth's Tuck School: "We admire companies that cater to constituencies more carefully." Not only do today's Most Admired keep customers and shareholders happy, but they spend time courting employees, federal and international regulators, the media, nongovernmental organizations, corporate-governance watchdogs, retirees, suppliers, and the local communities across the globe in which they operate--many of which distrust large corporations. And they do so in a hypercompetitive business environment where every wrong move is magnified.
Finally, we admire companies that are successful in transforming themselves, in good times and bad. The GE of 2002 is nothing like the GE of 1982--or even of 1992, for that matter. Microsoft made the Internet its rallying cry in 1995, but now Chairman Bill Gates has made security a top priority. This ability to predict changes in the marketplace, adapt to them, and capitalize on them more quickly than the competition is what keeps a company on the list during difficult times. (Nimble management can also get a company back on the list after a fall--Wal-Mart, Home Depot, and Johnson & Johnson are all returnees.) "Everyone is facing the same turbulence," says David Bliss, vice chairman of Mercer Delta Consulting, "but admiration is for those who consistently find ways to navigate the waves of change confronting them." It's no easy task, which is why America's Most Admired remains one of the most exclusive clubs around: Only 46 companies have ever made it into the top ten. (For a list of the top ten companies each year, starting from 1983, go to the Archive.)
What qualities will we admire most in the years ahead? That's an easy one--in the near term, at least. Thanks to the Enron implosion and the subsequent rash of accounting and corporate-governance scandals, the credibility of any corporation is no longer assumed. It must be earned. If you don't lay all your cards on the table, we'll assume you're a cheat. It's not enough to have a great brand, dazzling returns, and a charming CEO. Now more than ever, trust is the sine qua non of reputation. There's no mystery about that.
©Copyright 2002 Time Inc. All rights reserved. Reproduction in whole or in part without permission is prohibited.
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