ARM is Britain's Most Admired Company 2016

It's all change at the top of the BMAC league table.

by Matthew Gwyther and Andrew Saunders
Last Updated: 02 Dec 2016

It's entirely apt that the 2016 Britain's Most Admired Company award is won by a business that was created in the year of BMAC's birth - 1990. ARM (Advanced RISC Machines Ltd as it was then) came into existence 26 years ago as a tripartite venture between Acorn, Apple and VLSI. Its headquarters were a converted 18th-century barn in Swaffham Bulbeck, a village eight miles from the centre of Cambridge and success was not immediate. One of its early designs was the microchip used in Apple's first handheld device the Newton - a resounding flop.

Undeterred and under the leadership of first Robin Saxby and then Warren East - now CEO of Rolls-Royce - the company grew steadily through the 90s and noughties. Its very particular expertise - the design of high-performance, low-power consumption microprocessors - was perfect for the age of battery-powered mobile technology, and helped it become the leading member of the Silicon Fen cluster.

It listed on the London Stock Exchange and Nasdaq in 1998. Eighty-six billion chips later things are going swimmingly as devices with ARM designs at their heart are touched daily by 80% of the global population.

ARM is a glittering jewel in the global technology sector. Its chips are used not only in nearly all the world's smartphones and tablets but also in more prosaic washing machines and televisions. Now it is gearing up for the forthcoming Internet of Things revolution, which will see billions of 'dumb' articles from lampposts and pavements to doorbells and light switches hooked up to the internet. Its business model is famously different from larger rivals like Intel in that it specialises in design, licensing others to actually manufacture the chips.

'ARM has enjoyed immense success since we were founded in 1990 and next year we will celebrate 100 billion ARM-based chips, deployed in devices from sensors to supercomputers,' says CEO Simon Segars. 'Being named Britain's Most Admired Company for 2016 is a real honour and we are proud that the vision of our founders and the hard work of all of our people, past and present, has been recognised in this way.'

It's also significant that all the research for this year's survey was carried out after the referendum on 23 June had taken place, so that ARM is not only the first tech business ever to take the overall award, but it's also the first winner of post-Brexit vote Britain's Most Admired, to boot.

Britain's Most Admired Company 2016: The full list

Commenting on the impact of the EU referendum on the research schedule, Most Admired's progenitor and author Professor Michael Brown of Leeds Business School, says, 'This year's Brexit vote left us with the challenge of conducting the survey before and after the vote in June. We felt this was inappropriate and therefore we made the decision to conduct the research exclusively after the Brexit results had been announced.'

So this year's BMAC results are also notable for being the first comprehensive public analysis of the mood of UK plc, after the decision to leave the EU was made.

ARM may be less well-known to the general public than the more usual household name winners of the past, such as Unilever, Diageo, Tesco, Sky and Cadbury, but it's exactly the kind of high-value, intellectual property-based business that we will need more of if we are to prosper in our new life outside the EU. As well as the main award, it has picked up no fewer than four of the special criteria awards - for Financial Soundness, Quality of Goods & Services, Innovation and Company Competitiveness.

What is even more unusual for a BMAC winner is that ARM changed ownership part way through this year's research. Previously a listed company, it was pounced upon in July by the acquisitive Masayoshi Son, CEO of Japan's SoftBank who paid a handsome £24.3bn for his prize - a full 43% above its share price - a record sum for the UK tech sector. The company only made a net profit of £340m in 2015. The deal - which went through in a whip-fast 60 days - was hailed by the Chancellor Philip Hammond who said: 'Just three weeks after the referendum decision, it shows that Britain has lost none of its allure to international investors. Britain is open for business - and open to foreign investment.' Others were less happy, mourning the lost independence of a British star whose fate now lay in the hands of decision-makers in Tokyo.

Softbank's Masayoshi Son with ARM chairman Stuart Chambers

We must all hope that SoftBank keeps its promise to at least double the UK workforce of 1,600 and maintain the HQ in Cambridge. CEO Segars is confident about the future: 'We are not going anywhere,' he said after the deal was signed, 'We are still going to be at the heart of British technology. We are growing globally because we are a global business.'

But this statement leads onto the thorny question of where, precisely, the UK wishes to position itself in the global movement of people. Segars has already warned that any post-Brexit restriction on hiring foreign staff would seriously damage his business. 'Throughout the Brexit debate,' he told the FT, 'I said that the most important thing for our business is access to people. There are a finite number of (UK) engineers with the right skills we can hire. We have to be able to play unencumbered on a global playing field.'

Brexit. There is no getting away from it. Or what it might mean for all of us. The key fact to consider with this year's list is that it is a post-Brexit vote snapshot of UK plc. The research suggests that 25% of respondents believed there would be a negative influence on their turnover as a result of the referendum, 50% remained unsure of the impact and a mere 25% believed the outcome would be positive. And these are big companies often trading in currencies, mainly the US dollar, other than the now severely weakened pound.

It would indeed be interesting if this year's Top 10 were a foretaste of UK plc to come. There is plenty of change in the Top 10, and much of it points to a shift of economic emphasis. Only three companies - Unilever, Johnson Matthey and Berkeley Group - retain their top spots from last year. Gone, for example, are the gambling businesses Betfair and Paddy Power, whose post-merger positivity may have been derailed by the hardening of official attitudes towards the industry under Theresa May. In have come high value-added outfits such as steam systems expert Spirax-Sarco Engineering (up from 31st last year) and fire alarm-to-surgical instrument specialist Halma. Royal Dutch Shell is back after an absence of five years.

One thing that has remained the same since last year is the choice of Most Admired Leader. This is the boss of easyJet Carolyn McCall, who is still one of only six female CEOs in the FTSE 100. (Emma Walmsley will become the seventh when she steps up to lead GlaxoSmithKline next year.) McCall is now firmly established as one of the UK's most high-profile, effective and popular CEOs. So much so that ailing retailer M&S made a strong play to persuade her to take the helm in recent months.

easyJet's Carolyn McCall is Britain's Most Admired Leader for the second year in a row

The easyJet year has included plenty of turbulence - troublesome founder Sir Stelios may have remained in his box for once, but strikes in France cancelled thousands of flights earlier in the year, while the plunging pound has hit easyJet particularly hard as it is one of the few major airlines to report in sterling. Annual profits of £495m are respectable in the circumstances, and McCall has seen worse in the form of Icelandic volcanoes closing European airspace back in 2010, and she captains on.

In second place is Unilever, the most consistently high performer in Most Admired history having been a fixture in the top 20 ever since the start. Its portfolio of much-loved brands is even better established and ranges from Flora to Vaseline and Pot Noodle to Persil (not to mention Marmite of course, which had its five minutes of spotlighted fame during a dust-up with Tesco over price rises in October). The Anglo-Dutch giant has now admitted that its much-trumpeted Sustainable Living Plan will not now halve the environmental impact of its commercial activities by 2020. Undeterred in its mission, it simply pushed the date back to 2030. It also picks up the criteria awards for the Ability to Attract, Retain & Develop Top Talent and Community & Environmental Responsibility.

This year also sees a substantive change in the Most Admired methodology, with the addition of three new criteria to the existing nine by which each company is evaluated. The new measures are: Inspirational Leadership, Company Competitiveness and Corporate Governance. These are all subtly but importantly different from existing measures like Quality of Management, Innovation and Community & Environmental Responsibility.

Professor Brown explains his team's thinking behind these changes. 'After 25 years of incorporating minor modifications along the way, we have taken the opportunity this year to introduce more major changes.

'When conducting our preparatory work we considered if there were any intangible areas that the current nine characteristics were not covering. We found significant literature among the databases to consider incorporating three additional characteristics: Inspirational Leadership, Company Competitiveness and Corporate Governance.'

But Most Admired's strength still lies in the fact that it is a comprehensive peer review. Its USP is in the fact that in order to do well, companies must win the respect of their severest critics - their competitors. Your fiercest rivals may be harsh judges but they are also the people most aware of your strengths and weaknesses. If one firm can dominate the thoughts of its peers, it must be doing something right.

One sector struggling to do much right this year is the legacy retailers. Despite having been the backbone of the Most Admired Top 10 in years past, the cold climate on the high street means there is a marked absence of high-ranking retailers in 2016. Even Next, which had been in the Top 10 for many years fell to 11th overall last year and this year can do no better than 61st place. A similar tale of woe for Middle England and/or chattering classes favourite the John Lewis Partnership, which falls from 15th spot to 43rd.

This year's highest ranking retailer is German discount grocer Aldi at 22nd. Aldi has become a firm favourite with bargain-hunting Brits for its high quality and low prices, and manages to thrive despite not selling so much as a single bratwurst or five quid lobster online: it eschews the clicks of ecommerce in favour of old-fashioned footfall.

Another rare retail bright spot is Dixons Carphone, a business which many wrote off after what looked like a last-ditch survival merger in 2014. CEO Sebastian James and his team have proved the doubters wrong in fine style, with pre-tax profits up 17% in 2016 to £447m from its operations in 11 countries. It picks up the overall award for Inspirational Leadership (tied with Next).

Two of the year's highest risers are McDonald's and Merlin Entertainments, up 109 (to ninth) and 107 places (to 13th) respectively. Despite its woes in the US and rising competition from upmarket burger joints like Byron and Five Guys over here, the UK remains one of the most important markets for McDonald's - 97,000 people work in its 1,200 restaurants here.

Merlin Entertainments' almost equally substantial jump demonstrates that openness and good crisis management can help limit the damage of even the most tragic circumstances. The firm was fined £5m in September for a 'catalogue of errors' which led to 16 serious injuries on The Smiler ride at Alton Towers in June last year, including two teenagers who had to have leg amputations. But CEO Nick Varney has won the respect of his peers for his upfront response to the accident, although calls for his resignation from the public continue.

In another 'Annus Horribilis' for the nation's high-street lenders, special mention should also go to Swedish anti-bank Handelsbanken, which tops the banking sector for the first time, thanks to its devolved model in which the branch manager makes all the big decisions and there is no hard sell.

Handelsbanken first opened its doors in the UK way back in 1982, when the EU had only 10 member states and the single market was still a decade away. Making the most of the next 34 years will be an even greater challenge for the nation, but at least Britain's Most Admired Companies stand ready to play their part.

Biggest Risers
+133 Rentokil Initial 25th
+126 Cairn Energy 53rd
+110 Poundland 92nd
+109 McDonald's Restaurants UK 9th
+107 Merlin Entertainments 13th

Biggest Fallers
-147 Hikma Pharmaceuticals 185th
-124 Keller Group 171st
-118 The Restaurant Group 233rd
-107 Marston's 214th
-96 Elementis 142nd
-96 Babcock International 123rd

Read more: Britain's Most Admired Companies 2016