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This chapter is from the book

Identifying Firms of Endearment

Here is how we identified the companies featured in this book. Our process can be described as "organic and analog" rather than "mechanistic and digital." We were interested in identifying a representative sample of firms that met our humanistic criteria. We had no interest in conducting a statistical analysis of a plethora of companies in search of those whose financial performance supported the FoE hypothesis that companies can do well while doing good. Also, we did not want to exclude private companies from our analysis. As we demonstrate ahead, some of the best-managed companies from a stakeholder perspective are privately owned.

Whereas many companies we selected are well-known national and international players, others came to our attention because their names kept coming up when we asked people, "Tell us about some companies you love. Not just like, but love." Well, who doesn't like to talk about their loves? We didn't ask people to identify companies that they loved as customers or employees, or because the companies did some great things in their community. We left the reasons for loving up to them. We asked for nominations from thousands of people all over the world, including business professionals, marketing professors, MBA students, and about 1,000 consumers. We generated hundreds of candidate companies, many that are household names and many that we had never heard of. We then put them through a screening process that assessed the quantitative and qualitative performance of each company for each of the SPICE stakeholders. We also probed for vulnerabilities, asking questions such as these: Would most people say that the world is a better place because this company exists? How extensive a track record have they built? Do they have intensely loyal customers? How well do they treat their part-time employees? How high is their employee turnover? Do they have a reputation for squeezing their suppliers? Do communities welcome them or oppose them when they try to enter or expand? Do they have a record of environmental violations? Do they follow uniformly high standards of conduct worldwide? How have they responded to industry downturns or crises of confidence? Do they waste money on unproductive activities (such as advertising sales every week)?

Most studies of corporate exceptionalism (or "greatness," to use Jim Collins's term) start with financial performance and work backward. We started with humanistic performance—meeting the needs of stakeholders other than shareholders—and worked forward (see Figure 1-2).

Figure 1-2

Figure 1-2 How we selected FoEs

We picked the most promising 60 or so of the companies that bubbled up through our exploratory research and assigned teams of MBA students to research them. We directed the teams to conduct secondary and primary research (through interviews with executives, employees, customers, analysts, and others) on the companies, covering all major stakeholder groups: customers, employees, suppliers, communities, governments, and investors. When each project was completed by its assigned team, the other research teams assessed the results to gauge the extent to which a company qualified as a company loved by its stakeholders (that is, was qualified to be called a firm of endearment). The projects were completed over a two-year period. Some companies were investigated multiple times.

It is important to point out again that what we have in this book is an illustrative list of firms of endearment, not an exhaustive or definitive one. One of the great pleasures of working on this project has been learning about many more such companies. In fact, if you would like to nominate a company that we should consider incorporating into this ongoing research project, please visit our website (www.FirmsofEndearment.com).

It is also important to point out that none of these companies is perfect; each has areas in which it is relatively weak or somewhat vulnerable. Generally, these weaknesses are confined to one or at most two stakeholder groups. On the whole, however, these companies are quite exemplary in significant ways. And finally, we do not claim that when a company adopts the SRM business model that characterizes FoEs, that company will forever more be a great investment. Even the fortunes of FoEs rise and fall due to any number of conditions. However, our research suggests (at least anecdotally) that FoEs tend to have quicker responses to challenges and weather changes in market conditions with less disruption.

At the end of this stage of the research process, we went through the findings again and selected 30 companies that we believed best exemplify a high standard of humanistic performance. Then, and only then, did we conduct a detailed comparative analysis of these companies from an investor viewpoint. Our expectation at this stage was that these companies probably performed better than the "average" company, but not by a huge amount. After all, they pay their employees exceptionally well, deliver great products and experiences at fair prices to customers, and spend significant resources in the community—surely, all this should lead to a reduction in profits and thus the stock price. As we are often reminded, there is no free lunch, certainly not in the corporate world.

The Firms That Made the Final Cut

Amazon

Honda

Southwest

BMW

IDEO

Starbucks

CarMax

IKEA

Timberland

Caterpillar

JetBlue

Toyota

Commerce Bank

Johnson & Johnson

Trader Joe's

Container Store

Jordan's Furniture

UPS

Costco

LL Bean

Wegmans

eBay

New Balance

Whole Foods

Google

Patagonia

Harley-Davidson

REI

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