Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Glassdoor Ratings Might Predict Stock Market Outperformance

Evaluating a company's management is tricky. There are lots of subjective ways to look at resume, tenure, share ownership, compensation, and qualitative characteristics to judge the quality of management. Since management quality and alignment with shareholder interests are critical to investing success, many investors can be frustrated by the difficulty in assessing management prior to making an investment. One very easy metric, CEO approval ratings as measured by, demonstrates strong correlation between management quality and share performance.

To illustrate, here is a look at the three highest-rated CEOs of public companies within the consumer goods space as measured by Glassdoor. This list includes the leaders of Costco Wholesale (NASDAQ: COST  ) , Starbucks (NASDAQ: SBUX  ) , and Apple (NASDAQ: AAPL  ) .

Different businesses, similar results
Glassdoor's ratings are based on anonymous employee feedback. While not a scientifically selected sampling, this data provides real behind-the-scenes intelligence about how employees feel about their leadership. This information not only provides insight into a leader's ability to motivate and lead a workforce, but also has a clear connection with employee satisfaction and the quality of the work done by satisfied employees. Insight derived from these ratings is useful to investors in a wide range of industries, ranging from a food service company making lattes to a warehouse selling a lifetime supply of paper towels.

Let's look at Craig Jelinek, CEO of Costco and 6th highest-rated CEO on Glassdoor with a 95% approval rating. Costco's philosophy places emphasis on treating its employees well and the benefits are clear; Costco has employee turnover of just 6%, which is remarkable compared to Wal-Mart's turnover of more than 20%. Happy employees also create a positive customer experience, which is the driver behind Costco's impressive 87% membership renewal rate. With satisfied employees and customers, it should be no surprise that Jelinek has followed in the footsteps of former CEO Jim Senegal in driving market-beating results:

COST Total Return Price Chart

COST Total Return Price data by YCharts

Wide ranging success
Ranked 9th by Glassdoor, Starbucks' CEO Howard Schultz has inspired his management team to generate tremendous growth. This growth has been broad, with domestic location expansion, international expansion, and significant menu expansion to include juice, tea, soda, baked goods, sandwiches, and single-serve coffee at home. At Starbucks' annual meeting, Schultz suggested that there is more growth to come, stating "We're still in the early stages of the growth and development of Starbucks, we're delivering record profits and revenue, sharing our success with our partners and heading toward a $100 billion market cap."

A market cap of $100 million would represent almost double Starbucks' current market cap of $53 billion, and would be a continuation of a strong track record of market-beating performance:

SBUX Total Return Price Chart

SBUX Total Return Price data by YCharts

Great CEOs can have different styles
Steve Jobs was a legend, and clearly has an impact on Apple more than two years after his death. However, Apple has continued to grow and succeed thanks to his successor, Tim Cook. Cook's 92% approval rating is 18th highest according to Glassdoor and is a clear indicator of Cook's operational expertise, ability to motivate employees, and also calm the anxiety of investors following the passing of Jobs. Since Cook joined Apple in 1998, he's had far more to do with the success of the company than many give him credit for, and that success has continued in recent years including returns of 45% since Jobs' death and significant market outperformance over the past five years:

AAPL Total Return Price Chart

AAPL Total Return Price data by YCharts

Starting to see a trend yet?
The correlation between highly rated CEOs and stock performance continues. The next five highest-rated consumer goods CEOs of publicly traded companies follow the same trend:

EBAY Total Return Price Chart

EBAY Total Return Price data by YCharts

The key takeaway is that this linkage is not limited to CEOs of high-flying growth companies. While high-profile leaders like CEO Jeff Bezos and Chipotle Mexican Grill CEO Steve Ells are also on this list, media conglomerates like Disney and retailers such as Nordstrom have also had great success beating the market thanks to the leadership of well-liked CEOs. In fact, Best Buy CEO Hubert Joly is the only consumer goods executive on the list whose company has not outperformed the S&P 500 over the past five years. 

Based on this data, Glassdoor represents a simple yet powerful way to assess the quality of management when making an investment decision.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2014, at 12:49 AM, RussellL wrote:

    "Starting to see a trend yet?

    The correlation between highly rated CEOs and stock performance continues."

    Oh please! So many employees and managers are leaving Apple.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2920927, ~/Articles/ArticleHandler.aspx, 9/2/2015 5:58:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Shaw

Brian is a contributor to The Motley Fool that seeks to translate the investing wisdom of Peter Lynch and other investing legends into timely coverage of consumer goods companies.

Today's Market

updated Moments ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:00 PM
AAPL $112.34 Up +4.62 +4.29%
Apple CAPS Rating: ****
COST $140.42 Up +2.12 +1.53%
Costco Wholesale CAPS Rating: *****
SBUX $55.26 Up +1.76 +3.29%
Starbucks CAPS Rating: ****