MCBASSI & COMPANY

How Investors Rank Companies

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Bottom line
How investors “grade” a company is almost identical to how the company’s employees grade it.

Implications

  • In a world of increasing transparency, where employees’ ratings of their employers are easily made public (see, for example, Glassdoor.com), shareholders’ interests are increasingly aligned with employees’.
  • Investor relations departments need to be paying more attention to what their company’s HR department is doing, and how that is being communicated to external stakeholders.

The Evidence
Over the past few years, we have been collecting data on how both employees and investors rate companies on 12 attributes measuring company actions and attitudes in three domains: Employers, Sellers, and Stewards (of the community and environment).  For example, one of the attributes measured in the Employer category was whether the well-being of employees was of great importance to the organization being rated.

After assessing each of the 12 attributes, the raters were asked to assign an overall Good Company grade from “A” to “F” to the company they were rating.  We then used combined data from all respondents to analyze statistically the relationship between each separate attribute and the overall company grade.  This made it possible to determine which attributes were, on average, of greater or lesser importance in shaping a respondent’s overall assessment of a company.

Our analysis found the relative importance assigned to the various attributes is virtually identical between investors and employees.  Items in the Employer domain are overwhelmingly the most important for both groups.  For both groups, all four Employer attributes are among the raters’ five most important attributes.

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Good Companies Keep Winning

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Our 2014 edition of the Good Company Index Report contains a hopeful message: the good guys keep winning.

The report is a follow-up study on the behavior of Fortune 500 companies, first published in our book Good Company: Business Success in the Worthiness Era. The report contains an updated Good Company Index (GCI), which we use to assign grades to nearly 300 of America’s largest companies based on their record as employers, sellers, and stewards of communities and the environment. The top-ranked companies in the Fortune 100 this year are Apple, Ford Motor Company, and United Parcel Service.

We also analyze company stock market performance based on the previous GCI grades we assigned in 2012. The results? On average, those companies with higher 2012 GCI grades significantly outperformed their industry peers in the two years that followed.  The median outperformance was 5.1 percentage points, with almost 60 percent of the higher-ranked companies outperforming their lower-ranked competitors.

Further, a live portfolio comprised of the top-scoring companies on the 2012 GCI, invested since October 2012, outperformed the benchmark S&P 500 average (total return, including dividends) by 17 percentage points in its first two years, ending October 1, 2014 (see figure below).  The Good Company Index is used by the Enterprise Engagement Alliance to manage both their Engaged Company Stock Index and their People Centric Annual Awards.

Be sure to check out the full 2014 Good Company Index Report for complete details on the latest ratings!
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Replay of “Good Seller = Great Performance” webinar now available

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If you were unable to join us for last week’s webinar by Laurie Bassi and Bob Sherlock on “Good Seller = Great Performance,” the recording can be viewed below at your leisure:

Brand new 2012 Good Company grades released

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Just in time for Labor Day weekend, we’ve released the new 2012 Good Company Index ™ grades on 300 of America’s largest companies!

Check over on the Good Company website for full details.

Laurie Bassi TV interview

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Yesterday morning, Laurie was interviewed on KUSA regarding Good Company.

You can watch the interview here.

Do our Good Company ratings predict stock performance?

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Yes.

The grade that a company earned on the Good Company Index™ is a powerful predictor of subsequent stock performance.  We examined this question this summer, one year after we assigned company grades, to see how companies had fared in the market over the 12 month period that had followed.

To ensure that we were comparing only similar companies to one another, we looked at all “industry-matched pairs” (pairs of companies in the same industry) in the Fortune 100.  We 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 (when we finalized companies’ grades), Walgreen and CVS Caremark’s Good Company grades were a B- and D, respectively.  In the 12 months following the assignment of those grades (June 2010 to 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.

These are exciting findings for us.  One of the main themes of our book is an exploration of the direction the world will be moving in the future, but this represents evidence that being a good company is already paying off.

This post originally appeared on the Good Company blog earlier this week.

 

Video presentation of Good Company

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Laurie Bassi spoke recently at Bellevue University regarding Good Company, its stories, research, and data.  Click here to watch her full presentation.

The story behind Good Company

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Our book Good Company has been a very long time in the making.  It all started back 23 years ago with a conversation that changed my life.

In those days, I was a young assistant professor of economics at Georgetown University.  With my newly minted Ph.D. from Princeton in hand, I understood the rules of the game for someone in my position.  First among them was publish or perish.  Equally important was to do so in a way that was respected and valued by my profession – by doing research and publishing papers in prestigious journals based on complex mathematical modeling and sophisticated econometric analysis.  I became totally immersed in my field and this perspective.  I came to view the world and the people in it through a lens of simultaneous structural equations and elaborate statistical methodologies.

And then one day in 1988, I found myself in a steel mill in western Maryland.  I was there interviewing workers about the “learning environment” at the mill.  These interviews were a component of a well-funded research project I was fortunate to be working on – one that held the promise of getting some good papers published.  My immediate task was to translate the findings of my interviews with workers into quantitative, coded data.  It was definitely a “stretch assignment” for me, because truth be told, although I was a card-carrying labor economist, I had never been in a workplace anything like this before.

This steel mill was a pretty tough place.  It was hot – probably at least in the low 90s – dirty, noisy, and dangerous.  Workers were busy managing the flow of red-hot, molten metal as it moved between various pieces of massive processing machinery.  And there I was in my neatly pressed pant suit, with a tasteful purse on my shoulder, and clip board and Cross pen in hand – interviewing workers in steel-toed boots, hard hats, work clothes covered in grime, with sweat running down their sooty faces.  They were compliant and polite as I took them through one question after another about the extent and usefulness of the (virtually nonexistent) learning opportunities available to them through their work.

In the very last interview, I apparently asked one question too many.  In a very respectful tone of voice, the fellow I was interviewing finally said to me, “Look lady, I can sum it up for you like this.  I go home at the end of every day, whupped, tired and disgusted.”

That pretty much ended the interview – there was really nothing left to say.  He thanked me for my interest, and I thanked him for his time.

As I drove home that night, his words played over and over again in my mind.  I shared them with my husband, and I thought about them the next day and the day after.  The raw honesty of what he said didn’t fit neatly into my data coding scheme, and I understood that no system of equations – no matter how sophisticated or elegant – could capture the grim reality this gentleman had shared with me.

Over the course of the weeks and months that followed, I began to think very differently about my work.  It was no longer an academic exercise that would help me publish papers and get tenure.  It was much more important than that.  It was about the quality of people’s lives, and how they are shaped for good or for ill by their places of work.  I also came to understand the profound effects our work places have on our lives outside of work, and indeed, the very society in which we live.

That conversation set me on a journey that ultimately led to Good Company.  The book is a marriage of heart and head.  It is, I believe, an important book.  Here’s what my favorite professor at Princeton, Dr. Alan Blinder (former Vice Chairman, Board of Governors o f the Federal Reserve System), wrote about our book: “Close your eyes and wish that companies that were good to their employees, their customers, their communities, and the environment made more money than ‘the bad guys.’ Now open your eyes and read this fascinating book. Amazingly, Bassi, Frauenheim and McMurrer marshal evidence that it’s true. Read it and smile.”

I hope you will take the time to read it.  And if you agree it is important, please consider helping us to get the word out by sharing it with colleagues, writing a blog post, posting a review on Amazon, or sending us a testimonial.

Thanks in advance for whatever support you can provide.  I look forward to hearing from you.

(Note: this post was cross-posted from the Good Company blog.)

 

CFO.com commentary on Good Company

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CFO.com senior editor David McCann explored our new book Good Company in a recent blog post:
http://www.cfo.com/blogs/index.cfm/?d=07082011&t=1&month=7&year=2011

Interested in ordering multiple copies of Good Company?

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We’ll soon be placing our own order with the publisher (Berrett-Koehler) for our “authors’ copies” of Good Company. For a limited time we are able to share our authors’ savings (50% off the cover price) with you for bulk orders.  We’ll send you autographed copies for $13.97 per copy (including free shipping within the US) for pre-orders of 10 or more copies. 

Click here to place your bulk order or for more information.

If you’d like to read more about Good Company, we’d be happy to send you a preview copy of chapter 1.  Just drop us an email at info@mcbassi.com.

(This post was sent via email to our monthly newsletter subscribers last week. Click here if you’d like to subscribe.)