A growing body of evidence shows that companies can do well by doing good. Meanwhile, current economic, social, and political forces across the globe are changing the very shape of the playing field on which companies compete. Being a good company is rapidly becoming a fundamental and necessary element in the drive for companies to survive and thrive.
OUR LATEST FINDINGS: The grade that a company earned on the Good Company Index™ is a powerful predictor of stock prices. We examined all “industry-matched pairs” (pairs of companies in the same industry) in the Fortune 100 and found twelve pairs in which the companies’ Good Company grades differed by one or more grade levels (for example, a grade of B versus a grade of C). Across those twelve pairs, the stock price of the company with the higher grade outperformed that of its competitor with the lower grade by an average of 19.8 percentage points in the subsequent 12-month period.
For example, in June 2010, Walgreen and CVS Caremark’s Good Company grades were a B- and D, respectively. In the 12 months following the assignment of those grades (between June 2010 and June 2011), Walgreen’s stock price outpaced that of CVS by 30.7 percentage points.
Another example is Chevron and ExxonMobil: in June 2010, the companies’ grades were C+ and F, respectively. Between June 2010 and June 2011, Chevron’s stock return was 6.0 percentage points higher than that of ExxonMobil.
Other evidence points in the same direction, and includes the following:
- From 1997 to 2010, the average annual stock market return of companies on the Fortune list of Best Companies to Work For outperformed the standard US stock benchmark (the S&P 500) by over 7 percentage points per year.
- Multiple portfolios operated by Bassi Investments (run by Good Company authors Bassi and McMurrer) and selected based on how well companies manage and develop their employees have also outperformed the S&P 500 since their inception (the oldest portfolio was created in 2001)
- A study of firms five years after an initial public offering (IPO) found that investments in human resources represented the strongest predictor of firm survival (more important than net profit per share or industry type)