Which American companies are among the best choices for long-term investors? One answer is seeking out the companies that are the most admired -- and inspired to make real innovative change.
Fortune has long released an annual list ranking "The Most Admired Companies." The 2014 list is hot off the presses. The list doesn't contain earth-shattering surprises. These household names repeatedly float to the top. However, the complexities in defining "admirable behavior" spark ideas for big-picture investing. Sparkling reputations result in great returns, and thinking long and hard about what is admirable gives us an idea of ongoing business strength.
More than just the financial metrics
Fortune's methodology weighs "nine key attributes of reputation." These include:
- People management
- Use of corporate assets
- Social responsibility
- Quality of management
- Financial soundness
- Long-term investment
- Quality of products/services
- Global competitiveness .
Some of the biggest, brightest companies show up every year. Despite many investors' recent bearishness regarding investing in Apple (AAPL -0.91%) , it's No. 1 this year. It's no stranger to the top of the heap.
Internet giants Amazon.com (AMZN -1.90%) and Google have switched places for the Nos. 2 and 3 slots, respectively.
Berkshire Hathaway and its venerated leader Warren Buffett likely make No. 1 in the investment crowd. When Warren Buffett talks, people listen; he is a vast repository of wisdom in investing and in life. On this particular list, Berkshire came in at No. 4.
Rounding out the top-ranked companies, coffee giant Starbucks ranked No. 5.
The power of positive
Granted, each of these companies' businesses are contentious among those of us who believe in socially responsible investing. However, between their financial strength and increasingly responsible behavior, such overall admirable companies are great watchlist stocks for investors.
They can do a lot of good with their powerful businesses and growth. Their huge financial resources allow them to fire up research and development, snap up companies through acquisitions, and weather major economic downturns. They can also avoid a major value-destroyer: short-term profit-boosting. For example, many weaker, struggling companies are eventually forced to conduct mass layoffs or, worse, deliver pink slips to juice short-term profitability.
These admirable companies are increasingly seeing the light when it comes to the business-building aspect of stakeholder support and future value.
The Apple/Amazon conundrums
Apple and Amazon are particularly interesting denizens of Fortune's list.
Apple isn't been known for great worker treatment overseas and environmental initiatives. However, Apple has begun tackling some of these issues. It's starting audits of overseas factories, for example. Furthermore, just days ago CEO Tim Cook took on Apple shareholders who questioned the tech giant's sustainability plans, which include 100% green-energy usage.
Cook's angry response underlined exactly the crux of big-picture thinking: "We want to leave the world better than we found it."
Meanwhile, a problem at Amazon threatens its high ranking in Fortune's list of worthies: Worker treatment in its warehouses is increasingly hitting the public radar. Last fall, a BBC reporter infiltrated an Amazon fulfillment center and described mentally and physically taxing work. Reputation problems, particularly when it comes to employees who work the front lines, detract from business strength sooner or later.
On another level, though, Amazon's disruptive nature shows the innovative ways the massive behemoth can boost other people's hopes and dreams. Grassroots publishing through Amazon's massive digital network gives self-publishing writers a real shot without the potential barrier of publishing houses. Amazon is also working on producing more music, video, and literary content, and it's entering the art world. Fortune mentions these less publicized positives in its description of what's to admire in Amazon's business. Beneath Amazon's ruthless reputation, there is room for some big initiatives that level playing fields.
The admiration equation
Companies that merge growth, profitability, and stakeholder-friendly policies exist, but most companies are nowhere near perfect as they move in that direction.
Still, profit and purpose aren't at cross-purposes, and truly admirable companies are stretching further into these areas where traditional investors will push for short-term profits. They're increasingly making stands in these areas -- and we're all moving toward the change we want to see.
Investing is complex. Economies, individuals, and the world are living, changing organisms, and corporations must evolve or fade away.
A sea change in how managements view stakeholder friendliness is part of the admiration equation. The push for profits and purpose is turning out to be a competitive advantage.
Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.