2012
New Good Company rankings: a quick look at Disney
Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”
As Time Warner has gone to the head of the class, Disney has moved back to the middle of the pack. The entertainment giant, our top-ranked company in 2011, saw its Good Company Index™ grade fall from an A, the top score in the inaugural ranking, to a C+. Disney’s performance as an employer continued to be solid, but its rating as a seller slipped and its marks as a steward dropped dramatically. For instance, it didn’t earn any points in our new categories of political accountability and ethics.
Disney was also dinged for excessive CEO pay. We consider extravagant CEO pay to be a sign of lack of restraint and against the spirit of good corporate stewardship. According to a New York Times study of top executive compensation, Disney CEO Robert Iger raked in $31.4 million in 2011—placing him in the top 5 among CEOs in the Fortune 100 firms we ranked. (As it happens, Disney had flirted with losing a point on our inaugural Good Company Index for its CEO pay: it ranked sixth, with Iger’s 2009 compensation of $21.6 million coming in just behind the $21.9 million pay of fifth ranked Abbott Laboratories CEO Miles White.)
We do not mean to declare that Disney has gone from being a “good” company to a “bad” one. But the firm that claims to operate the “happiest place on earth” appears to have work to do to make all of its stakeholders happy.
2012
A new best company: Time Warner Corp.
Below is an excerpt from our recently-released report “2012 Good Company Index: It (Still) Pays to Be Good.”
It’s Time Warner’s time at the top. The media company stands alone at the pinnacle of the 2012 Good Company Index. It earned a grade of A-, the only A grade earned by any of the Fortune 100 companies this year. Although Time Warner had a middle-of-the-road score as a seller, it earned positive marks as an employer and had particularly strong results as a steward of communities and the planet.
As a traditional media company trying to reshape itself to serve audiences that are increasingly online and mobile, Time Warner has faced challenges in recent years. CEO Jeffrey Bewkes has streamlined operations, cutting some jobs along the way. But Bewkes has shown he is willing to bear some of the cost-cutting as well. He told the New York Times he was willing to give up his office with a coveted view of Manhattan’s Central Park, calling Time Warner’s corporate headquarters near the park an “indulgence.”
And employees overall believe the company to be a decent one to work for. Time Warner’s score at employee feedback site Glassdoor.com was 3.4 out of 5, placing it in the top quarter of Fortune 100 companies we ranked. One employee posting at Glassdoor called Time Warner a “Great place to work,” adding that “management seems to know what it’s doing and communicates that message well with employees at the company. Benefits are strong.”
Another sign of Time Warner’s worthiness as an employer can be seen in the company’s new chief of the Time Inc. magazine division, Laura Lang. A recent New York Times profile indicates she embodies key traits of good leadership: setting a smart digital strategy to reverse declining operating income and revenue, avoiding major layoffs, and communicating extensively with employees in a series of meetings in offices throughout the country and in London. “The point of the process was to say we’re not going away in a room and shutting the door and whispering,” Lang told the New York Times.
That same spirit of transparency helped Time Warner earn high marks as a steward. The company ranked in the top tier of organizations on the CPA-Zicklin Index of Corporate Political Accountability and Disclosure. Time Warner also earned points as a Good Steward for its inclusion on the Ethisphere Institute’s list of the World’s Most Ethical Companies and the Dow Jones Sustainability North America Index, as well as its high score on the Newsweek ranking of companies’ environmental performance.
Significantly, Time Warner didn’t lose any points for running afoul of the law in the last five years (the period included in our ratings). In our first Good Company Index, Time Warner scored a B-, its score negatively affected by a 2005 incident in which it agreed to pay $300 million to settle fraud charges by the U.S. Securities and Exchange Commission. Among other allegations, the SEC said Time Warner overstated online advertising revenue and the number of its Internet subscribers. We did not turn up significant penalties or fines against the company since then, indicating it has played by the rules—a fundamental feature of a good steward.
2012
It (still) pays to be good
The Worthiness Era is in effect.
That’s the take-away from the second anniversary of the Good Company Index, which shows that better-behaving companies outperform their peers in the stock market.
The index is the metric my co-authors and I created as a feature of our book Good Company. It assesses companies on their performance as an employer, a seller and a steward of the planet and communities.
When we first gave Fortune 100 companies grades on the Good Company Index, we saw evidence that it pays to be good. And the data keep reinforcing the conclusion that our economy has entered a Worthiness Era, in which the high road is the only road to sustainable success.
Annually, we are examining all “industry-matched pairs” (pairs of companies in the same industry) in the Fortune 100 in which the companies’ original Good Company grades differed by one or more full grade levels (for example, a grade of B vs. a grade of C).
Across those 12 pairs of companies that met this criterion, the stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 30.2 percentage points over the 2-year period following the assignment of Good Company grades.
Consider Hewlett-Packard and IBM. HP has been the less good of the two computer industry rivals. Its original Good Company grade was a C vs. IBM’s B+. And it seems to have paid a price for being “less worthy.”
To be sure, HP isn’t all bad. It has shown itself to be a solid steward through extensive recycling programs and a green manufacturing methodology. But it has been a less-than-stellar employer over the past decade or so.
In the book, we define a good employer as one that is exacting, caring and inspiring. On at least two of these three criteria, HP appears to have fallen short. For example, it has lacked an inspiring vision that employees can rally around. HP’s longtime “Invent” motto and more recent “Everybody On” slogan both miss the historical moment: People now want the companies in their lives to make the world better, not just create new stuff for people to use. And with multiple rounds of massive layoffs, the company has shown a degree of callousness to workers as well as ignored evidence that downsizing generally does not lead to success.
I’m not sure about the extent to which HP is exacting in its management—by which we mean measuring workers against performance goals and using data such as employee surveys to help guide the business. But what’s become clear is the goals and strategies HP executives have pursued have been faulty. The company has focused largely on cutting production costs on personal computers, has taken only halting steps into the mobile device world and has seemed to lose touch with its proud tradition of technology innovation.
IBM, on the other hand, has set a sound strategy tied to helping companies makes sense of “big data.” And it has voiced a corresponding vision that’s compelling to both customers and employees: building a “smarter planet.” IBM has cut jobs as well over the past decade. And it may ax more U.S. jobs in the months ahead. But it also has sought to ease or avoid employee pain through steps such as a program to help workers shift to careers in other fields.
Not surprisingly, IBM employees rate their company higher than HP workers rate theirs at feedback site Glassdoor.com. HP’s Glassdoor score two years ago was 2.6 out of 5, while IBM’s was 3.1—a difference that helped determine their respective Good Company grades. And their scores at Glassdoor continue to show a good employer gap: HP’s score has edged up slightly to 2.7 while IBM’s is a consistent 3.1.
The worthiness difference between HP and IBM helps explain the dramatic difference in their stock performance since we first gave them Good Company Index grades. The stock value of IBM increased by a cumulative 58.4 percent during the two-year period compared with a decrease of 53.4 percent in HP over the same time, for a 111.8 percentage point outperformance for IBM.
Goodness may not account for all of this divergence. But the HP-IBM story strongly suggests that, increasingly, the lower road does not compute.
That’s the effect of the Worthiness Era.
A version of this post originally appeared at Ed’s Work in Progress blog at Workforce.com.
2011
Will Steve Jobs’ way get the job done at Apple?
Count me among those who doubt Apple will continue to shine in the years ahead. But my concern is less about Steve Jobs’ departure so much as it is about the culture he helped created. I’m not sure Apple’s way is well suited for the emerging Worthiness Era.
A Fortune story from a few months ago shed rare light on the inner workings of Apple under Jobs. On the positive side, it revealed a narrow product focus, tight-teamwork among top execs and an extreme commitment to accountability.
But it also showed three major warning signs in Apple’s culture. First is a top-down, dictatorship style. This is encapsulated in an annual top-secret gathering of the company’s “Top 100”–employees who have been, in effect, “anointed” by Jobs. Plenty of evidence suggests a more democratic, bottom-up method is the management ethos of the future. In particular, Apple is at odds with the civic, participatory attitudes of Millennials.
The second, related, red flag is Apple’s arrogance toward employees. As one Fortune source noted, Apple views employees with a degree of disdain, summed up thusly: “Shut up and do your job, and you might get to stay.” Once Jobs leaves, and with it his cult of personality, will employees continue to give their all for managers with mean streaks?
Third, and perhaps most troubling, is the company’s obsession with secrecy. Yes, the mystery around its next product has gained it free publicity. And Apple in recent years has published reports that admit problems in its supply chain. But earlier this year, a coalition of Chinese environmental groups accused Apple of having the least transparency about pollution issues in its supply chain among 29 technology companies. Shrouding shortcomings in supply chains is increasingly unacceptable to consumers, workers and investors.
More generally, by keeping its doors shut so tightly to the outside world, Apple is missing opportunities to tap the wisdom of the crowds–all the feedback Google and other firms get from the “extended enterprise” of customers and partners. One disturbing sign for Apple: phones with Google’s Android system have overtaken iPhones in terms of market share.
Then there’s the effect of Apple’s secrecy on its own workforce. Consider the hush-hush off-site retreats of the 100 employees that Jobs considers most important at the company. These are magical for most of the employees picked, Fortune reports. But the opaque nature of that selection runs against worker demands for a transparent, fair workplace. Employees not picked for the event have sulked with a “Bottom 100” lunch.
Apple under Jobs has projected the ultimate image of cool. But the underside of cool is cold, heartless. And in the wake of the recession, warmth and kindness are in. “Kindness,” literally, is the brand trait that has grown most in importance to Americans in recent years, according to research by marketing firm Young & Rubicam. Apple ads have mocked rival Microsoft as nerdy. But the public rates Microsoft higher than Apple on reputation measures, thanks largely to the generous giving of Bill Gates, according to Young & Rubicam executive John Gerzema. Gates “gives Microsoft a human face and, more important, his philanthropy gives the company a heart,” Gerzema and journalist Michael D’Antoniowrote in strategy + business earlier this year.
Microsoft also outscored Apple in our Good Company Index. The index measures Fortune 100 firms on their records as employers, sellers and stewards of communities and the planet. Apple earned a “B-,” tied for 18th. Not bad, but not great. And our research shows that companies that have behaved better consistently have outperformed their peers in the stock market. We predict that increasingly, only thoroughly worthy firms will thrive. Apple isn’t headed in that direction with a sense of urgency.
So yes, Jobs was a master CEO for three decades. And Apple has gleamed like no other company in recent years. But as perhaps the last great leader in the 20th century command-and-control style, Jobs may have been a man of his times as opposed to a timeless genius. His legacy at Apple, rather than safeguard its future, may be what causes the company to lose its luster in the years ahead.
A version of this post originally appeared at Ed’s Work in Progress blog at Workforce.com.
2011
The good environmental steward
We recently explored the role of the good environmental steward on Matter Network. This took a close look at household and personal care company Seventh Generation (and includes excerpts from chapter 9 of Good Company).
(The article is also available on Reuters.)
2011
A fast-food Good Company (imagine that!)
Pret a Manger – a UK fast-food company now making inroads in New York (as well as Washington and Chicago) – has the markings of a Good Company.
How? Its employees. As described in the New York Times, “The cashier is asking New Yorkers how they are doing – and genuinely seems to want an answer. The guy who is throwing out the garbage offers customers a cup of water. The manager swings by to commiserate about the sweltering weather. This is fast food? In Manhattan?”
It goes to show that being in a tough industry is not a good excuse for being a lousy company.
In fact, it seems that “Pret” is turning the logic of the fast-food industry on its head, and profiting as a result. It focuses on a comprehensive approach to developing employees, encourages them to let their real self surface in customer interactions, seeks their input in hiring decisions, and has a meaningful and motivating system of rewards and recognition.
In exchange, it enjoys employee turnover rates that are a fraction of the industry norm, and growing profitability.
Seems there’s a good lesson or two here for the competition. Are you paying attention, McDonald’s, Burger King, KFC, et al.?
2011
FedEx delivers the “goods”
When it comes to being a good company, FedEx delivers.
The shipping giant earned an A- on our Good Company Index. That was the second-highest mark among the publicly traded Fortune 100, behind Disney, and reflects FedEx’s strong record as an employer and as a steward of the planet and communities.
FedEx made Fortune’s Best Companies to Work For in America from 2008 to 2010. The company prides itself as being a sustainability leader and showed as much in 2007 by calling for the U.S. Government to set fuel-efficiency standards annually for medium- and heavy-duty vehicles. CEO Fred Smith also was named by Forbes.com in 2010 as one of the seven most influential people in “clean tech.”
Since founding FedEx in 1973, Smith has been a lynchpin in preparing FedEx for the emerging Worthiness Era, in which better-behaving businesses will beat out the bad guys. Under his leadership, FedEx has developed a “People-Service-Profit” philosophy, which stresses caring for employees as a foundation of great service, which will lead to a strong bottom line.
It’s not just happy talk. Smith responded to the Great Recession by chopping pay at the top. He trimmed his own salary by 20 percent, while other senior executives had their salaries reduced by 7.5 to 10 percent. The rest of the salaried workforce exempt from overtime pay rules took a 5 percent cut. The salary cuts did not affect hourly employees —workers such as couriers and package handlers.
No wonder employees talk about “bleeding purple”—the company’s trademark color.
To be sure, FedEx isn’t perfect. It didn’t receive high marks on our measurement of customer service, from research firm wRatings. And the company has come under fire for classifying drivers in its FedEx Ground division as independent contractors rather than employees.
But overall, FedEx is headed in the right direction. It has outperformed rival United Parcel Service on the American Customer Satisfaction Index for 9 of the past 10 years. And it works to make sure its supplier network lives up to high standards. For example, FedEx has provided training in its leadership principles to some of its suppliers, helping those organizations to manage their people better.
Worthiness is paying off for FedEx. For the year ended May 31, 2011, FedEx saw its revenue rise 13 percent to $39.3 billion and net income jump 23 percent to $1.45 billion.
A few weeks ago, we encountered a FedEx employee at the San Francisco offices of our publisher, Berrett-Koehler. Of course, we quizzed him about what he thought of his company. He noted that FedEx quickly restored cuts to employees’ 401(K) plans made during the downturn.
Not knowing the title of our book, he offered this assessment of his employer: “It’s a good company.”
We agree.