The time for competitive corporate governance has arrived. Wall Street analysts and the media have sliced and diced the American corporation more ways than a federal regulation has pages. They already measure the biggest, most profitable, most admired, best citizens, and of course, many other financial metrics. And yet for some, (like us) these lists seem oddly out of sync. A great employer posts poor earnings or a great profit maker is not a terrific corporate citizen. These facts suggested that something should be done to recognize companies that are both far sighted in terms of corporate governance and producing returns for their shareholders.
Hence, the Nifty Fifty of our era—Directorship’s “Best Performing, Best Governed Companies in the Fortune 500.” We took on the challenge of identifying those spectacular companies whose leadership both in the market and the boardroom is worthy of emulation. We then listed them based on raw data and weighted them for various disparities in size, sector, and circumstance, including overall economic stress factors that have prevailed, board director qualifications, and a new factor, limited outside board memberships by the CEO. We feel that CEO time is the most valuable commodity for the shareholder.
Of the total, we recognized one company in the 50 that managed to succeed against challeges beyond anyone’s expectations—that company is Goldman Sachs, and its chief executive, Lloyd Blankfein, is our CEO of the Year for 2009. The top 50 were chosen from the Fortune 500 based on measures of size, shareholder return, admiration, and corporate governance. Private companies, foreign companies, and companies that have a CEO appointed after the end of 2008 were not considered.
The top 50 were then reranked based on the above criteria. (Since return to shareholders is such a critical measure, it was weighted at 2X the other measures). Because we believe both performance and corporate governance are more difficult to achieve in the large-company setting, we felt a special premium should be placed on the largest. Finally, we brought the entire list to our Advisory Council for review and comment and noted the additional qualitative factors aforementioned.
What we came up with was a list—the only list that has attempted to place performance and governance together in one calculation —of great companies by anyone’s measure. In future years, with even more data and more measures, we hope to refine, if not improve, the methodology. Our conclusion: governance and performance are merely two sides of the same coin.
SOURCE: 1 Fortune 500 2009 rank based on revenue 2 Three-year average annual return to shareholders (June 30, 2006 to June 30, 2009) 3 Based on Fortune’s 2009 ranking of World’s Most Admired Companies 4 Based on RiskMetric’s Corporate Governance Quotient plus a bonus for ranking on CRO’s Corporate Citizenship rankings