Flocking Like Sheep: The Culture & Culpability of Corporate Hype
by Jim Finkelstein, Karen Sella & Rob Mason of FutureSense, Inc.
Are the world’s “most admired” companies really living up to their billing? Amidst a sagging economy and business scandal, the answer, it seems, is sadly obvious. The resounding exaltation of Wall Street and beyond rings decidedly hollow through the empty halls of former industry giants; Enron, WorldCom, Qwest… Indeed, the story is becoming all too familiar as we sift through the records of one prodigal company after another. These purported goldmines of best practices and sound investments are too frequently turning up fools gold for unfortunate investors, shareholders, and employees.
Yet this is not another fiery critique or a dire prognosis, but rather a reflection on the culture and culpability of corporate hype. We recently conducted a study to determine if those organizations touted as “most admired/respected” actually outperform other companies. Given the widely publicized array of corporate debacles, perhaps our results are not surprising: those firms consistently labeled as “most admired”—the subjects of countless case studies in best selling books—rarely do better than average in the marketplace.
An over reliance on these “most admired” lists in the glossy “who’s who” of industry magazines has the capacity to severely limit independence, innovation and good old-fashioned common sense. As a result, we have seen business leaders “flocking like sheep” to keep up with the “most admired” without a thorough understanding of actual relevance and application within their respective organizations.
The FutureSense 40 “Most Admired”
We cross-referenced several of the “most admired/respected” lists published annually in magazines, such as those in Fortune and the Financial Times, as well as those companies most mentioned in best selling business books within the last five years. Forty firms showed up repeatedly as being ideal companies to follow. To gauge their performance in comparison to the overall market average, we then reviewed these companies’ stock prices against the S&P 500, the NASDAQ, and the Dow Jones over the last five years.
Out of the 40 “most admired” companies, only 14 (or 35%) outperformed all three composites while 11 firms (or 28%) performed below (often far below) all three. Thirteen (or 33%) of the top 40 firms performed with mixed results with their stock prices lurching above and below the overall market over the five-year period in a rather volatile fashion. Neither outperforming nor under performing, 2 (or 5%) companies consistently matched the market.
Review our findings in greater detail: FutureSense40.
Flocking Like Sheep
Since 26 (or 65%) of the 40 “most admired” companies did not perform better than market average, one has to question what being “most admired” really means. Fortune and the Financial Times surveyed executives across the globe about specific (?) criteria such as “quality of management” and “global business acumen” in order to compile their lists. Thus, their respective data may indicate the businesses most admired by business leaders. On the other hand, those companies in best selling business books are generally mentioned in service of the authors’ biases—sometimes supported by quantitative data and more often, qualitative anecdotes. Indeed, some of the books about “great” companies are simply self-serving marketing vehicles produced by the very same “great” corporations to drive public admiration their self-proclaimed “greatness.”
Since executive and expert opinion together created a top forty list in which the clear majority regularly performed below the market, we can only assume that there is much misconception amongst executives and experts alike as to which companies are truly great and what really defines greatness. It seems obvious that great popularity is hardly an accurate indicator of great performance, and yet it would seem that many of us still confuse the best and brightest for the bright and shiniest.
Relying on opinions without independent thought and critical analysis may be expedient, but it is hardly admirable. In fact, this tendency to follow the “most admired” often results in generally smart companies flocking like sheep to achieve little more than the latest conventional thinking and corporate hype.
Exercise Common Sense
Unfortunately, the reliance on “top 40” lists is firmly rooted in the corporate world and perhaps our own cultural ethos. There is a distinct tendency, one might say even an infatuation, to readily consume “best of” lists which systematically arrange anything from universities to mountain bikes in some hierarchical fashion. In fact, by creating our own “top 40” list, we are certainly subject to our own criticism.
Our point, however, is that these lists and case studies—while not inconsequential—are inadequate in defining admirable corporate trends. Some companies, such as GE, have consistently done well and outperformed the market, but other “highly most admired” firms such as Ford Motor have gone in the opposite direction. Both are considered “great” by the same standards, yet the two really do not match up in the market.
Here’s a novel thought: judge other companies by your own professional and organizational standards before leaping to join the ranks of the “most admired.” After all, truly great organizations are led by those who recognize the difference between worthless hype and valuable innovation.