Does Trustworthy Business Result in Stock Market Outperformance?
This week, a well-respected colleague put a challenge before me. He said that Trust Across America (TAA) must continue to correlate stock market performance to trustworthiness in order to gain the attention of public companies. In other words, companies care about little else.
While I humbly think that TAA has gained plenty of attention, I love a challenge! So Mike, this one’s for you!
I decided to look back at our first “Top Ten” Most Trustworthy Public Companies named in early 2010 and calculate the collective market performance of these ten companies vs. the S&P 500. We begin our calculation on December 10, 2009, the day the companies were selected, and end on May 17, 2013.
This is the list:
Hess (HES)
Albemarle (ALB)
Best Buy (BBY)
Cummins (CMI)
Eastman Chemical (EMN)
Lexmark (LXK)
Lubrizol (acquired by Warren Buffett)
Sonoco Products (SON)
Texas Instruments (TXN)
USANA (USNA)
Setting Lubrizol aside (although the Buffett acquisition could be the subject of a separate blog post) leaves us with 9 companies. Collectively, these companies posted gains of 63.96% vs. 51.27% for the S&P, resulting in outperformance of 24%. For those of you who want to dig a bit deeper, 8 companies increased their share price while one (Best Buy) saw a decrease. Three companies had greater than 100% stock price appreciation over that period.
So Mike, in the short-term you may be more right than wrong. But the world is not that simple. We are seeing a shift in focus away from shareholder value, albeit a slow one. Building trustworthy organizations and increasing stakeholder trust, while flying in the face of the quarterly income statement mentality, may be gaining in popularity.
I will argue that the companies listed above are “on to something” that somehow approximates trustworthy business practices. On the other hand, maybe Trust Across America just got lucky, as I’m sure some will conclude, when our FACTS® Framework chose these companies back in 2010. You decide.
Feel free to leave your comments here or email me at barbara@trustacrossamerica.com
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Barbara,
The broader the sample, and the longer the timeframe, the more we’re going to see a correlation between trustworthiness and stock price performance.
And that’s even without positing tectonic shifts in attitudes toward trust (where I agree with you, it’s happening). As Steven M.R. Covey put it succinctly, trust makes things go faster and cheaper. Companies that do that make more money. It really is that simple
A more convincing analysis might be to examine these companies’ performance against their indivudal industry peers rather than the S&P 500.