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EXECUTIVE PERSPECTIVE: Three questions for choosing a winning company

By Chad Holliday | 25 April 2013

(Editors Note: Mr. Holliday is the former Chairman and CEO of DuPont, and he serves on several corporate boards)

How do you pick a successful company for the long term, either as an investor in a stock or a career?  This article adds to existing best practices for choosing a company in which to invest.  There are a number of ratings and analytical factors to consider in choosing a company— e.g., growth of its industry, differentiation, competitive advantage, experienced leadership, market segmentation, net worth growth and stock price performance.  All of the traditional methods for choosing a company, including your wisdom and judgment should be utilized.  In addition, the sustainability of the company should be assessed.  In this brief article we describe three areas to consider.

I currently serve on the boards of Bank of America, Royal Dutch Shell, John Deere and CH2MHILL; and am the former Chairman and CEO of DuPont. Ten years ago, while serving as Chairman for the World Business Council for Sustainable Development (WBCSD) I co-authored a book called, Walking the Talk: The Business Case for Sustainable Development.  This book examined 67 case studies (based on 70 organizations).  The case studies focused on describing what actions leading organizations were taking in the areas of sustainability, corporate social responsibility and climate change.  In 2013, through my company, East Meets West Solutions, LLC, we examined the success of the 70 organizations over the past 10 years.

The Right Three Actions

Based on our analysis, 25 of the 70 organizations were determined to be highly successful.  The highly successful 25 companies in our analysis did three things right: (1) engaged diverse stakeholders, (2) set long-term goals and (3) achieved solid financial results.

In other words these organizations took action to be sustainable over the long run. This is not a new idea, although it is not given enough importance.  For example, the annual Corporate Sustainability Assessment (CSA) conducted by Robeco Sustainable Asset Management (SAM), has several criteria related to stakeholders, planning and finance. RobecoSAM is an international investment company with a focus on sustainability investments.  The CSA is a basis for the Dow Jones Sustainability Index (DJSI).

(1) Engaged Diverse Stakeholder

A common benchmark in sustainability is engaging stakeholders.  The craft of doing it well, involves ongoing relationships with diverse stakeholders in a way that brings new knowledge, foresight and innovation into your company.  Common ways of implementing this are creating stakeholder panels, sharing a board member, project collaboration and dialogue.  Leading organizations ask themselves, “Are we engaging diverse stakeholders in a quality way that brings new knowledge and capabilities into our organization?”

(2) Set Long-Term Goals

Companies successful at sustainability ask core questions about their company and industry that may go as deep as reshaping their mission and vision.  Over time products and services must be reshaped to meet evolving societal needs.  When a long-term strategy—looking ten years and beyond into the future— guides short-term business planning, broader applications for sustainability to operations, services and products can be determined.  Leading organizations ask themselves, “Are our short-term business actions really aligned to a long-term strategy that includes sustainability across operations and customer facing products and services?”, and “Does our long-term strategy really set the bar high enough?”.

 (3) Achieved Solid Financial Results

A strong economic bottom line is a prerequisite for a business to be an industry leader.  A strong economic bottom line indicates effective leadership and an understanding of industry trends.  Leading organizations ask themselves, “How can we achieve solid financial results now, while also building the muscles needed for long-term growth?”

Demonstrating Industry Leadership

Leading organizations raise the bar of performance within their industries.  These 25 organizations made public, durable commitments to sustainability; shared their performance and best practices in a transparent way; and worked to raise the performance standards of their respective industries.  Participating in trade organizations with a social or environmental focus is one of the ways highly successful organizations increase their capabilities as leaders.  These organizations focus on sustainability, corporate social responsibility and/or climate change solutions as part of their business objectives; are successful within their industries; and are members of the WBCSD, United Nations Global Compact (UNGC) and Global Reporting Index (GRI).

World Business Council for Sustainable Development (WBCSD) is a CEO-led organization comprised of forward-thinking companies that galvanizes the global business community to create a sustainable future for business, society and the environment.  Today it has over 200 member companies representing a combined revenue of over $US 7 trillion.

United Nations Global Compact (UNGC) is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption.  UNGC has over 10,000 corporate participants and other stakeholders from over 130 countries.  It is the largest voluntary corporate responsibility initiative in the world.

Global Reporting Index (GRI) is a non-profit organization that promotes economic, environmental and social sustainability. GRI provides a comprehensive sustainability reporting framework that is widely used around the world. It has a network of 30,000 professionals representing organizations from all sectors and industries.

Conclusion

The speed of change and amount of data available for analysis are ever increasing.  Use all the tools that have served you well in the past to evaluate the long-term sustainability of a company.  Add to it the following questions.  The 25 leaders of highly successful organizations we studied asked and answered these three questions.

  •  How well do they engage diverse stakeholders?
  •  How challenging and public are their long-term goals?
  •  How well have they met their short-term financial goals?

Any opinions Expressed in "Executive Perspectives" are those of external parties and not those of Thomson Reuters.

Topics

Corporate Governance, Executive Perspective

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