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Entries in performance (3)

Thursday
Nov192015

Corporate longevity

If corporate success can be defined, at least in part, by longevity then it is sensible to look for common elements among organizations that have survived and thrived for the longest period of time. The Financial Times has been doing just that, and I enjoyed this piece on corporate values.

One interesting finding was that strong corporate values appeared to be essential to corporate longevity; essential but not sufficient on their own.

Probing further, one theme that emerged was that sensitivity and agility--an ability to cope with change--is an essential skill. Companies are communities of people, and Gerald Storch, chief executive of Hudson’s Bay Company, noted that adaptability meant paying attention not only to customers, but to employees too. “Listen to your people because they know what is going on. They know what is right and what is wrong, what will work and what will not work.”

Tolerance is also called out as an essential trait; companies that survive over the long term are tolerant of elements within the business exploring around the far edges of the current business. They are well positioned to take advantage of innovations and new opportunities when the competitive, regulatory, or technological landscape shifts.

-- Clara Shen

Friday
Apr242015

Sustainability and performance -- data challenges conventional wisdom

A paper written by a team of professors from the Harvard Business School and the London Business School argues that companies can institute high social and environmental standards without sacrificing shareholder value. In fact they go further than this, stating that "high sustainability" companies achieve greater returns for their shareholders, suggesting that this is a long-term competitive advantage.

We provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market as well as accounting performance"

Adopting high sustainability standards has implications for corporate operations and governance. The researchers found that the boards of directors of these companies are more likely to be formally responsible for sustainability and top executive compensation incentives are more likely to be a function of sustainability metrics.

Looking at the cumulative stock market performance of a portfolio of high sustainability companies compared to the performance of a control group portfolio of "low sustainability" companies, the researchers found that the high sustainability group "significantly outperform" the others. Further, the data suggests that high sustainability companies in the consumer-facing business sectors benefit relatively more than those in the B2B sectors.

The paper explores possible explanations for this result. They suggest that while companies adopting high sustainability standards are more constrained in their actions, they may outperform the control group because they are able to :

  1. Attract better human capital
  2. Establish more reliable value chains
  3. Avoid certain costly conflicts and controversies
  4. Be at the forefront of product and process innovations that align with high social and environmental standards

This work looks at important issues associated with our exploration of the Economics of Mutuality, and suggests many interesting areas for further exploration.

-- Clara Shen

Tuesday
Mar032015

Foundations as majority owners -- impact on performance 

When businesses are owned by charitable foundations, how does this affect corporate performance?

Starting with the statement that conventional economic theories predict such companies should be highly inefficient, Steen Thomsen from the Copenhagen Business School and Henry Hansmann from Yale Law School assess the relative performance of foundation-owned businesses vs. investor owned ones in this paper.

The model has some degree of viability, as charitable foundations are majority owners of a number of leading global companies, including the Tata Group, Robert Bosch, and Bertelsmann. Since their framework provides the boards of such companies an immunity to outside discipline, while removing compensation incentives, one might expect such companies to underperform their investor-owned peers. Yet earlier studies have found that foundation-owned businesses seem to perform as well as more conventional investor-owned companies.

Thomsen and Hansmann's research findings provide an additional level of insight to these findings:

We find that, overall, foundation-owned companies have similar accounting profitability, take less risk, and grow more slowly than listed investor-owned companies."

Overall then, the their analysis suggests that foundation-owned companies do not underperform -- and may even overperform -- their investor-owned peers in some areas (though more work is needed to bolster the later). The authors note two possible interpretations for the results:

  1. All ownership structures have inherent disadvantages; and
  2. The long-term outlook of foundation ownership provides compensating advantages.

These investigations are interesting, and can inform our own efforts to understand different business models and innovations.

-- Bruno Roche