The Best-Managed Companies of 2019 -- and How They Got That Way -- Journal Report

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The Best-Managed Companies of 2019 -- and How They Got That Way -- Journal Report

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By Chip Cutter 

America's best-run companies today include some of the nation's oldest corporate giants and many of its most nimble technology firms.

This year, Amazon.com Inc. unseated Apple Inc. to earn the No. 1 spot in the Management Top 250, an annual ranking that uses the principles of the late management guru Peter Drucker to identify the most effectively managed companies.

The online retailer was bolstered by its relentless focus on innovation. Microsoft Corp. rose to the No. 2 position, followed by Apple Inc., with Google parent Alphabet Inc. and networking-equipment giant Cisco Systems Inc. rounding out the top five.

A team of researchers at Claremont Graduate University's Drucker Institute compiles the list using dozens of data points to evaluate companies on five performance dimensions: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.

Those principles reflect the teachings of Mr. Drucker, long considered the father of modern management, who emphasized a comprehensive approach to leadership. He argued that highly functional organizations should benefit not only investors but also society, a viewpoint that has gone in and out of vogue.

"This was a breakthrough year" for such holistic thinking, says Rick Wartzman, head of the KH Moon Center for a Functioning Society, a part of the Drucker Institute. "Big companies are thinking about their role in society, and more explicitly, how to serve all of their stakeholders, not just the shareholders. That's what our ranking is all about."

Though technology companies dominate the top of this year's list, a wide spectrum of sectors is represented in the ranking, including retailer Walmart Inc., beverage maker PepsiCo Inc., delivery provider United Parcel Service Inc. and auto makers Ford Motor Co. and General Motors Co.

Red flags and controversy

While every company has flaws, the ranking aims to point out those firms that are particularly good at balancing what are often competing management priorities. The metrics include employee pay compared with industry averages, patent applications and three-year average total shareholder return, among others.

Researchers examined 820 companies this year and added new components to the mix of 34 indicators, which helped account for some movement on the list. This year's Management Top 250 includes 48 newcomers, such as insurer Progressive Corp., cloud software company ServiceNow Inc. and money-management giant BlackRock Inc.

The researchers also rolled out a "red flag" system, highlighting companies with particularly weak scores in one dimension of Drucker's scorecard. Facebook Inc. earned a red flag this year for its weak customer-satisfaction score; the company has been embroiled in controversy over its data-privacy practices and misinformation on the platform. (The full methodology of the ranking can be found at WSJ.com/ManagementTop250.)

Drucker researchers say even the most robust rubric can't fully account for every problem a company may have, and some metrics may have a time lag. A handful of organizations on the 2019 list are in the midst of significant controversy. Johnson & Johnson, No. 8, earlier this year faced more than 100,000 lawsuits over its safety and marketing practices involving products such as opioids and baby powder. In October, a jury awarded a man $8 billion in damages after he claimed use of J&J's antipsychotic Risperdal as a child caused enlarged breasts. J&J is appealing the ruling.

In a statement, the company said that it has won many of the cases related to its talc powder and noted that all verdicts against the company are on appeal. The company also says its products accounted for less than 1% of opioid prescriptions written in the U.S.

A J&J spokesman added the company is committed to social responsibility, and notes it has donated 500,000 doses of its Ebola vaccine to stem the outbreak in Africa and is on track to produce and donate one billion doses of the deworming drug Vermox.

Boeing, No. 31, is navigating the worst crisis in its history after two deadly crashes of its 737 MAX planes killed 346 people, setting off a firestorm of criticism about the company's culture and sparking investigations into whether Boeing cut corners that jeopardized safety and provided incomplete or misleading information to regulators and airlines.

A Boeing spokesman said the company is working toward the safe return of the MAX. He added that Boeing has "taken steps to further strengthen our company culture and reinforce our enduring values of safety, quality and integrity."

An innovation powerhouse

Amazon catapulted to the top of the list this year by earning an off-the-charts ranking in innovation. Its score in that dimension of performance is more than double that of any other company. Amazon outpaces others in patent applications, trademark registrations and spending on research and development. It also abandons patent applications at a higher rate than others, a sign of its commitment to move past obsolete technology, Drucker researchers say.

Amazon also rated highest for the number of cutting-edge job postings in fields such as artificial intelligence, augmented reality and robotics. Longtime Amazon employees credit an intense focus on writing as part of the creative process for helping the organization sharpen its ideas and come up with new products and services.

Amazon culture, set from the top down by founder and chief executive Jeff Bezos, has long shunned lengthy slide presentations. Instead, employees present a memo that can be no longer than six pages and that is silently read at the start of a meeting by everyone present. Mr. Bezos praised the memo process in one of his letters to investors: "Some have the clarity of angels singing," he wrote. "They are brilliant and thoughtful and set up the meeting for high-quality discussion."

Getting that document right can become an obsession, with employees repeatedly editing, soliciting feedback and aiming to be as succinct as possible, says Jacqueline Underberg, a director in Amazon robotics. A memo can take weeks to perfect, she adds.

An engineer by training, Ms. Underberg says she never anticipated that she would be writing on the job. But after crafting dozens of memos, she's found it to be an efficient way to exchange information and prompt a smart discussion. "I despise PowerPoint now," she says.

Memos have been the root of a number of innovations, from Amazon's Prime Now delivery service, which offers customers items in as little as an hour, to programs that were part of Amazon's decision to retrain a third of its workforce.

Toni Reid, a vice president of Alexa Experience and a more than 21-year veteran of Amazon, coaches her team not to solve too many technical problems in a memo or force a conclusion when one is uncertain. "If you do that, you end up watering down the project to average, because the technology likely doesn't exist," she says. "It's something we may need to invent."

Amazon's Alexa, she says, started with a vision presented in a memo, even though the company had to later build the technology to power it. That's why Ms. Reid encourages her team to spend ample time crafting the documents.

"You actually have to carve out space in your calendar and your brain to really be able to think and spend the time writing," she says. "Especially if you're trying to come up with something visionary that hasn't been done before."

While Amazon stands out in innovation, the company is a more uneven performer on other Drucker scores. It is below average on measures of social responsibility, although the company has made efforts to improve in that regard. Mr. Bezos earlier this year unveiled a climate pledge, noting that the company plans to be carbon-neutral by 2040.

Amazon has also been criticized for its treatment of workers by labor groups and lawmakers, although it raised the minimum wage for its U.S. employees to $15 an hour last year and has focused on helping workers gain new skills, even in occupations outside of Amazon.

Getting everything right

A handful of companies have particularly high scores across the ranking's five dimensions of performance, setting them apart from their peers. This year's eight "all-stars" include medical-device maker Edwards Lifesciences Corp., ranked 25th overall, which boasts one of the highest customer-satisfaction scores in the ranking. (See the full list in the accompanying graphic.)

Edwards operates by a set of values that says if it serves patients and clinicians well, employee satisfaction will grow and financial results will follow, says Michael Mussallem, Edwards's chief executive. In the three years through the end of October, the company's stock rose 164%, far outpacing the S&P 500's 48% gain in the same period.

Mr. Mussallem says the company goes to extensive lengths to connect employees to a broader sense of purpose. It hosts regular events that bring patients to the company's offices so they can meet with the employees who hand-stitched their heart valves.

"It fills our employees with a tremendous amount of joy," Mr. Mussallem says. "It doesn't matter what role you might have in the company -- we make the point that it takes all of us together to do this."

Another all-star this year is No. 15 Procter & Gamble, the maker of Tide detergent and Dawn dish soap, among many consumer products. Jon Moeller, P&G's chief financial officer, emphasizes the company's focus on employee engagement and development. P&G grooms its employees to work across multiple product categories and industries, he says, and builds multiyear career plans for them.

Many employees have long tenure, Mr. Moeller says, because they feel heard and valued. "It's a culture that encourages contribution and rewards it," he says.

A big move up

One of the biggest movers on this year's list is human-resources technology company Automatic Data Processing Inc., which jumped 104 spots to No. 62, thanks to a gain of eight points in its overall score, to 64.7 from 56.7.

The company handles payroll for 26 million American workers, and is coming up with inventive ways to make sense of that data. It can show employers, for instance, which departments may be encountering unnecessary overtime costs or experiencing higher-than-expected attrition. If a company's turnover is higher than its peers', ADP can alert it. The company is also developing tools to show firms how their structures may compare to organizations of a similar size, for instance pointing out if a company has too many middle managers.

Internally, ADP is finding creative ways to bolster employee satisfaction. A few months ago, the company's president of major account services, John Ayala, went undercover, donning a beard and mustache to sit in a classroom for days with new hires, many early in their careers, as they spent their first week on the job. He eventually revealed himself, says Carlos Rodriguez, ADP's chief executive, who adds that the effort was a valuable way to improve the onboarding experience and understand what young workers' concerns were.

ADP has 58,000 employees, so "getting just slightly better in terms of their engagement or their productivity or whatever metric you want to point to makes a huge difference in terms of the success of the company, " Mr. Rodriguez says. "If you're only focused on the financial results and you don't take care of the employees, eventually that's not going to work."

Mr. Cutter is a Wall Street Journal reporter in New York. He can be reached at chip.cutter@wsj.com. Sharon Terlep, also a Journal reporter in New York, contributed to this article. She can be reached at sharon.terlep@wsj.com.

 

(END) Dow Jones Newswires

November 22, 2019 10:55 ET (15:55 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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