Thursday, November 5, 2009


In the past few months, while I have been trying to make sense of the strategies of the world’s largest companies in my editorials, my analysis has many times flamboyantly and quite shamelessly used the Fortune 500 lists, without doubt the most well known international listing of the world’s best managed corporations. Over the course of various editorials, my research team has time and again brought out data and analysis, which has almost never ceased to surprise me, and many times even changed my preconceived notions of what constitutes the best course of strategic action for a company. In short, the findings of my team have represented some of the most contemporary understanding in the world of modern management and in the world of Fortune 500, the highest revenue earning firms internationally. And in this issue’s editorial, after analysing many of my past editorials, I bring to you the compendium of 6 unique strategic factors that drive a majority of these Fortune 500 corporations in their search of excellence:

Only 6% of Fortune 500 companies in 2009 made it to the list of Fortune Best Companies to Work For 2009 list. In other words, the entire list of Fortune’s Best Companies to Work For had no mention of 94% of the top Fortune 500 names! The highest placed amongst those in the Fortune 500 list was the 10th ranked Valero Energy, which was placed eighth-last on the Best Companies to Work For list. The #1 company on the Best Companies to Work For list (NetApp) was ranked #647 on the Fortune 1000 list! The #2 and #3 on the Best Companies to Work For List (Edward Jones & BCG respectively) did not even feature amongst the Fortune 1000 names!

Learning: The best performing corporations of the world (in terms of revenues, increasing shareholder value and earnings) make sure they’re not fun places to work; rather, excellently performing companies like Exxon and Berkshire ensure that employees are made to work killingly hard.

Surprisingly, the top ranked Fortune names weren’t the ones who could be most proud about delivering the best of returns of their shareholders. So guess which company delivered the maximum returns to its shareholders amongst all 2009 Fortune 500 names? An unknown firm called Dollar Tree, now ranked #499 on the Fortune list, gave back to its shareholders 60.8% returns y-o-y. In fact, only six Fortune 500 names delivered annual returns superior to 20%. The other five names are: Family Dollar Stores (ranked 359), Nasch-Finch (ranked 492), World Fuel Services (ranked 147), Amgen (ranked 168) and Omnicare (ranked 392); all of which, except one (Amgen) are into the ‘Services industry’! Even when we look at the revenues earned per dollar of assets or per dollar of equity, the top five industries in both the categories belong to the services sector.

Learning: If you want to be counted amongst the most efficient and productive companies of the world (for your shareholders, investors, customers), the services sector is where you might want to be for the coming few years.

Only 3% of 2009 Fortune 500 companies have women as their CEOs; and the irony is that this puny woman CEO figure is actually a 0.6% jump over the previous year. And if the Fortune 1000 names are considered, the count boils down to a lower 2.8%. The figure is similar to the Standard & Poor’s 500 list, which has just 14 names of companies that are headed by women CEOs (again, 2.8%).

Learning: The world’s biggest companies don’t trust a woman to be their CEO.

While the average tenure with a single Fortune company for a Fortune 500 CEO is a high 26 years, the same for an S&P 100 CEO is also a similar 23 years, disproving the hype and hoopla about job-hopping leaders. While 61% of S&P 100 CEOs have been working for the same company for 15 years or more, 30% have never worked anywhere else (Source: Hewitt Associates CEO Study)! The report by Booz Allen Hamilton titled ‘CEO Succession: Stability in the Storm’, after analyzing the world’s 2,500 most valued publicly listed companies, also proves how loyalty is still alive and kicking, with boards today even encouraging succession planning of ‘internal candidates’. The study notes how “among new CEOs, outsiders – those brought in from outside the company to take the helm – make up only about 24 percent of the incoming class.” The belief in youth is also quite strong. Another study by Hewitt Associates, titled ‘Board Index 2008’, notes that as boards get older, “the average age of the CEO has decreased” as compared to 10 years back. As per the C T Partners report titled ‘Does Age matter when you’re CEO?’, S&P 500 companies, which are run by the youngest CEOs, outperform those run by the oldest. Stocks of S&P 500 companies whose CEOs are 47 and younger have outperformed the S&P 500 Index by 6.2% since 2007, while those led by CEOs who were 72 and older underperformed the S&P 500 Index by 12%. Even when Forbes magazine measured the performance of the 10 youngest (average age 44) CEOs vs. the 10 oldest (average age 74) CEOs of large companies using a formula to measure CEO compensation packages relative to shareholder return, it found that “the younger CEOs as a group outperformed the higher-paid, older CEOs.”

Learning: If you have any ambition of becoming a CEO, be loyal, and never jump jobs (at least, not more than once)!

Despite all the hogwash talk about corporate governance and splitting of the CEO and Chairman roles, the truth remains intact – one bird in the hand is better than two in the bush. While 64% of Fortune 500 CEOs play the dual role of a Chairman and CEO, the figure is just about the same with S&P 500 companies, where 61% of the companies have the same person serving as the CEO & Chairman (Source: Hewitt Associates Board Index Report). A case to point is Rex Tillerson, the man in charge of ExxonMobil, one of the world’s top three corporations. Rex has been serving as both the CEO and Chairman. Under him, Exxon has reported eight of the ten highest quarterly net profits for any company in the history of mankind. The top three highest being $14.83 billion (during Q3, 2008), $11.68 billion (Q2, 2008) & $11.66 billion (during Q4, 2007) – all three records when he was the ‘dual’ man on top!

Learning: More the people taking the decisions, more delayed a company’s response to competition. Clearly, the world’s leading firms combine the Chairman’s and CEO’s post.

Over the past decade, outside board service by CEOs has fallen by 65% as compared to 1998. On an average, CEOs now serve on only 0.7 other boards, down from 1.0 in 2003 and 2.0 in 1998, as the Board Index Report by Spencer Stuart concludes. Not just that, the average size of the Board of Directors is also shrinking, having fallen by 10% over the past decade. The trend towards smaller boards becomes more noticeable now: The number of boards in the S&P 500 with 12 or fewer directors has increased by 18% since 1998 and 8% since 2003. Surprisingly, today 80% of S&P 500 Boards have 12 or less than 12 directors.

Learning: Do not allow the top management to focus on anything other than your corporation!



  1. Indeed a good insight Mr. Sandeep. To th most I do agree on Lesson # 1. If a firm has to outperform the expectations its employees need to fire. In this cut to throat competitive markets, to be more productive, efficiet and competitive, employees has to work like they are in war zone. Nothing else will produce the best.

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  3. Thank you So much Sir for your valueable research. I hope it will help many of upcoming Entrepreneurs.. Thanks a Lot.. !!!