For the past 18 years, FORTUNE’s Most Admired Companies issue has been the high school yearbook superlatives section for the global business world. But the list is more than just a popularity contest. Companies that score top marks are often also the most profitable.
So how does admiration translate directly into success?
Research fielded by the FORTUNE Knowledge Group, in collaboration with gyro, lends insight about the nature of this relationship.
One of the most striking trends identified by “Only Human: The Emotional Logic of Business Decisions” is that decision-makers have a strong preference for partners who demonstrate a commitment to values. Case in point: A full 71 percent of the 720 executives surveyed said their feelings about a company’s reputation, culture and demonstrated character motivate them to work with that organization, even if it means sacrificing immediate bottom-line gain.
This powerful desire for trust and long-term partnership is one of the strongest reasons why companies on the Most Admired list are often also highly successful. In fact, those who rose in rank or joined the list for the first time in 2015 often stand out for their choice to risk profit in order to stand by their convictions – mirroring the behavior attested by the executives in the survey.
Perhaps the most striking example from 2014 is how a risk can pay off. For example, #45 CVS pulled a Don Draper when it stopped selling cigarettes in all 8,000 of its stores nationwide, despite a projected $2 billion in lost sales. Leadership stood by the decision, even as front-of-store retail declined 4.5 percent in the quarter after the ban went into effect (and same-store sales were affected by 480 basis points).
But the determined convictions of CVS succeeded in attracting strong loyalty and powerful advocates. The end of tobacco sales improved CVS’s ability to attract employers to its pharmacy networks (expanding its footprint) and its prescription management business. CEO Larry Merlo earned himself a spot next to First Lady Michelle Obama at the 2015 State of the Union address. These new partnerships ended up paying off in sales, too. In fact, instead of posting a loss in Q4 of 2014 – the first full quarter without tobacco sales – CVS’s revenues increased by 12.9 percent to a record $37.1 billion.
Not all values and convictions are equally important to decision-makers. One of the most important is a company’s commitment to its own workers. Fifty-two percent ranked “a strong culture committed to shared goals” as one of the most important factors influencing their choice of partner, and 50 percent cited respect for employees demonstrated by management.
Costco, #16 on the list, has famously embodied these values for years. With paying a starting wage of $11.50/hour and an average $21/hour wage for all hourly workers, the company has repeatedly affirmed its belief in providing not only a living wage but also health coverage to its employees. In 2014, while major competitors, ranging from Walmart to Trader Joe’s, cut benefits for those working less than 35 hours a week, Costco has remained committed to providing healthcare coverage for those working 23 hours or more. In fact, a full 88 percent of its employees are covered.
Costco CEO Craig Jelinek, himself a 30-year veteran who started as a warehouse manager, set his company’s convictions in ink, when he penned a letter to Congress last February requesting that the federal minimum wage be raised to above $10/hour. His philosophy, “Before you ever open up your doors, you have to start with your employees,” has paid off in profits and operational efficiency. Among those employed for more than a year, the company has only 5 percent turnover – a figure that’s even smaller among the executive ranks. The results are there: While 2014 saw Walmart’s sales flatten, Costco’s grew by 6 percent.
Fortune’s list of Most Admired Companies is full of stories like Costco’s – Chipotle, Toyota, Nestlé, and Johnson & Johnson all took risky gambles this year in order to stand by their values. In today’s world, more than ever, those choices – and the reputation they ultimately convey – matter increasingly more to decision-makers and potential business partners around the world. As senior editor at large Geoff Colvin of FORTUNE puts it, “The days where corporations could sort of just operate in the background without getting much notice are long gone.”
Elizabeth Lee – Global Strategist, gyro
After graduating with degrees in psychology and linguistics from Columbia University, Elizabeth set out to study how peoples’ minds, emotions, and words work in the real world. As an independent branding consultant and at boutique NYC agency CreativeFeed, Elizabeth has crafted compelling stories for international industry leaders in luxury fashion, cosmetics, publishing, wine & spirits, financial services, and technology. At gyro, she helps lead the agency’s global strategy team, uniting a network of thirteen offices in the pursuit of human relevance.