THE TIMES 100 : Lessons From the Past : Looking back at how companies have fared since being listed in The Times 100 shows some interesting patterns but no magic formula that can reliably predict a company’s future.
Report cards, as any number of students can attest, usually don’t tell the half of it. They can’t really reflect what Johnny has absorbed in the classroom, and they certainly aren’t reliable indicators of how he will do next year, let alone for the rest of his life. Nonetheless, they offer a hint of what is to come.
And so it is with the nearly two dozen rankings printed on the pages here. Some companies that appear to be soaring unimpeded do falter. And operations all but given up for dead do indeed pull back from the brink. Still others seemingly drop off the planet. It happens every year.
Consider, for example, what has befallen some of the leaders of the The Times’ 1990 lists of California public companies with the fastest revenue growth and the greatest annual stock appreciation--seemingly as good a set of measures as any of corporate future.
Just a year after burning up the track as the second-fastest-growing public company in the Times 100, L.A. Gear Inc. tumbled into the red and has yet to regain its momentum. The Santa Monica-based athletic-footwear maker lost $22 million in 1994 and is not on top of any Times 100 listing this year.
And who would have guessed that the leader of the 1990 Charging Ahead list, a ranking of companies whose stocks enjoyed the greatest surge in value in the previous 12 months, would find trouble so easily and quickly? About 15 months after the rankings appeared, Leo’s Industries of Long Beach filed for Chapter 11 bankruptcy protection and closed all its retail stereo outlets.
And so it goes.
Still, none of this negates the validity of the original rankings or undercuts their usefulness. It does, however, underscore the point that these lists, and the myriad others that rank performances, should be taken exactly for what they are: corporate report cards based on rigid sets of criteria applying to a prescribed period of history, not formulas that can predict what lies ahead.
“There isn’t a single magic number that defines a strong company,” says Harry DeAngelo, professor of finance at USC. “These rankings should be considered as rough guides, measures that help flag good and bad performances in the extreme.
“They suggest questions for the prudent mind, but they offer no answers in and of themselves,” he says.
Of course, there’s still the matter of whether the right questions are suggested.
Would it have been reasonable to suspect that Sunrise Technologies International Inc., whose initial public stock offering in 1989 increased more than any issued that year, wouldn’t make any Times 100 ranking in 1995 because its 1994 annual revenue of $7.57 million would be under the list’s $10-million threshold? Stock in the Fremont, Calif.-based dental laser systems maker, still as high as 17 in 1991, currently sells for under a dollar.
Could anyone have thought that Western Digital Corp., the Irvine computer parts manufacturer whose souring fortunes in the early 1990s put it on the brink of bankruptcy, would by 1994 post annual sales of $1.9 billion, 50% higher than the year before, and profit of $143 million?
Would it have seemed prudent to wonder whether AST Research Inc. of Irvine, whose computer sales and stock price were soaring in 1990, would just five years later be listed among the California companies to have suffered the greatest losses in the previous year and among the stocks least favored on Wall Street? Then again, the stock has done well lately, particularly since Samsung Electronics Co. has moved to buy 40.75% of the company.
The real issue is that virtually all such lists ranking corporate performances are based on results generated over a year or two, observes Robert Levering, co-author of “The 100 Best Companies to Work for in America” and “Everybody’s Business: A Field Guide to the 400 Leading Companies in America.”
Levering argues for adding a different set of measuring tools, assessing the strength of a company’s vision, focus and determination--namely, its people.
“What makes the difference in a company’s overall performance over the long term is its people and their internal cooperation within the company, a measurement that rarely shows up on any list in a clear way,” Levering says. “Employees have to be moving in the same direction at the same time for a business to be a success.”
Indeed, vision, determination and a tradition of strength are what many analysts believe turned around the fortunes of San Francisco-based BankAmerica Corp., parent of the state’s largest and most prosperous bank. In 1987, the bank lost $955 million, and its survival as an independent operation appeared to be in jeopardy. Last year, the bank, which has since swallowed up rival Security Pacific Corp., posted a profit of $1.995 billion.
The matter of people and vision notwithstanding, though, BankAmerica has plenty of company in the turnaround category. There was Mattel Inc., the El Segundo toy maker, which lost $92 million in 1987 and earned $252 million in 1994. And there are the spectacular crashes and burns of the high fliers.
Barry’s Jewelers Inc. of Monrovia was the No. 48 entry on the Times 100 list in 1989 and in (and then quickly out) of Chapter 11 bankruptcy reorganization in 1992.
The infamous Columbia Savings & Loan, the No. 89 entry on the Times 100 list in 1989, is no longer operating. C&R; Clothiers Inc. of Culver City, No. 29 on the same list, filed for bankruptcy reorganization in 1992 and emerged from it that year. And West Hollywood-based Carolco Pictures, the 1989 list’s No. 25 entry, has itself been flirting with filing for bankruptcy for the better part of the last five years.
So what’s a reader--an investor, employee or vendor--to do with all this seemingly confusing information?
Think about it carefully, say the experts.
Lists and rankings should be taken in their aggregate, says USC’s DeAngelo, who recommends that readers search for patterns among companies’ performances, just as parents search for key indicators on the report cards of their children. Repeated appearances at or near the bottom of lists should be a warning sign.
If it’s a business engaged in the latest, hottest trend, be wary, they say. If it’s a solid company being buffeted by a dramatic but short-lived economic cycle, be patient.
In the end, however, Levering says, it all comes back to the people in a business--how those people are treated as employees and how they treat their customers.
“If all companies needed were robots,” he says, “people issues wouldn’t matter. But we haven’t gotten to that point, and we won’t.”
