High profits and share price are one measure of a company's success, but peer praise is perhaps harder won. Management Today's survey reveals the esteem in which Britain's biggest companies are held by their competitors.
It's odd - though, given its record, not entirely surprising - that Britain's most admired company is also one of its most inelegantly named. 'Rentokil', as the company's chief executive Clive Thompson has often rued, 'is a disaster in any language'; so disastrous that, according to some, Thompson should replace its three harsh syllables - literally 'rent-to-kill' - with something more benign.
Our survey, though, does not seek to assess companies on the merits, appeal or suitability of their names. Its intention, rather, is to gauge their relative strengths and weaknesses as perceived by their peers - those who meet them in the market, who are alert to the nuances that others might miss and who, hopefully, are immune to the noise and hoopla that can often deafen an outsider to a company's true state of affairs.
To achieve this aim, Management Today followed the trail of three previous surveys of corporate reputation (conducted on behalf of the Economist and published in 1989, 1990 and 1992) and commissioned a study by Loughborough University Business School to find Britain's most admired companies. The methodology used here (see box, page 43) echoes that of its predecessors.
Rentokil's place at the top of the table seems well deserved. Its financial virtues are by now renowned; phenomenal long-term growth in profits and earnings per share, strong cash flow and, despite an almost constant stream of acquisitions, a never-depleted store of cash. Yet those who are enamoured by figures alone may overlook the principles that underpin its success. Foremost among these is its strategy of operating on a global scale in niche businesses where it can command a premium for basic office services, whether these cover the tending of tropical plants or the disposal of waste. It has also notably restricted the size of its acquisitions so that none - to date there have been over 200 since Thompson's accession - distort the shape of the whole. The challenge it now faces is to carry on growing - as it so publicly claims it can - at the same heady rate.
Just as Rentokil rose to the top from its previous third place, the movement of others that may equally be considered 'world class' is relatively slight - admiration that has typically been earned over many years does not appear easily lost. In the space of four consecutive surveys, for example, Glaxo, overall winner in 1992, has never been out of the top three. Similarly, Unilever, together with Shell and Marks & Spencer, winners in 1989 and 1990 respectively, have only ever shifted positions within the top ten by a few places. More look set to join their ranks - Cadbury Schweppes, for example, previously at 14, now at 7, SmithKline Beecham, which moves from 9 to 4, and Reuters from 5 to 6.
Some new entrants surprise with the extent of their leap; Electrocomponents, the catalogue-based distributor of electrical spares, arrives straight at eighth place; similarly its sector rival, Bowthorpe, manufacturer of specialist electronics, comes in at 10. Both, in accordance with the nature of their business, are low-profile operations but receive sufficient admiration within their sector to push them into high positions.
The same is true of industrial controls group Siebe - in at 35 - and Wolseley, 29, star of the building materials and merchants sector. By the latter's own admission, it relinquished its private status only with great reluctance. The debut of Chubb Security at 14, meanwhile, adds to the tally of highly regarded companies that were formerly part of Racal Electronics (Vodafone, also chaired by Sir Ernest Harrison, lies at 12). The parent itself, however, is less fortunate and drops from 76 to 157.
Some of the table's steepest rises can at least be partly ascribed to the swift recovery of companies whose business is tied to strongly cyclical sectors: Glynwed, for example, wrong-footed by recession, has benefited from strong demand for its building products as the construction industry has returned to health. Its ability to cut costs and make greater use of its assets - for which it receives the sector's highest rating - appears to give it an edge on its peers. It rises from 191 to 43. Similarly, Croda, the speciality chemicals group, climbs from 212 to 73 following the increasing strength of its key markets. Its impressive advance is also buoyed by a much enhanced rating for its capacity to innovate.
The end of recession has also driven Whitbread's strong ascent - from 161 to 25. More specifically, however, it has gained from selling its stakes in several regional breweries - with the proceeds from the disposal it has managed to wipe out its previously high gearing. The effect recorded by the survey is dramatic - from being rated the least financially sound of its peers it is now judged the most secure. Its rival in the drinks sector, Allied Lyons (now Domecq), similarly advances in the wake of its acquisition earlier this year of Spain's Pedro Domecq. Elsewhere, British Steel surges ahead - from 189 to 54 - on the back of markedly higher scores for the quality of its management and products, its financial soundness and its value as a long-term investment.
Of those heading in the other direction, two stand out for the way in which their downfall can partly be traced to the dire effects on profitability - and reputation - of abortive attempts at diversification into overseas markets - particularly across the Atlantic. Dixons slides from fifth to last place in its sector - and from 86 to 209 overall - after the sale of Silo, its loss-making US electrical retailer, forced it to make heavy provisions and report a loss of nearly £200 million for the first six months of its financial year 1992-93. Similarly, Scottish textile group Dawson International drops from 84 to 212 following its withdrawal from a disastrous American venture in non-branded clothing. Again, provisions and write-offs took a heavy toll on those scores tied to financial performance.
Others appear to suffer from their very perceived lack of adventurousness. Reckitt & Colman, for example, has recently struggled with the image of a dull and rather lacklustre operation that lacks both direction and focus. It is a view evidently shared by its peers, who award it substantially lower scores across the board and force it down from 18th to 138 place. Its £1 billion purchase of L&F Household from Kodak, announced in September (after the survey was completed), together with the disposal of some of its long-established UK businesses, appears to have come too late to prevent its decline in standing.
There is volatility elsewhere in the health and household sector. The enthusiasm that surrounded Wellcome two years ago (when £300 million worth of shares previously held by the Wellcome Trust were offered to the public) appears to have given way to a more sober assessment of its value. Its peers downgrade its scores in three key characteristics - for its quality of management, capacity to innovate and value as a long-term investment - and as a result it drops from 11 to 108.
Misdemeanours at Yorkshire Tyne Tees have accelerated its descent. It falls from 148 to 251 after the revelation of what chairman Ward Thomas termed 'misguided practises' in its advertising sales department - the selling of airtime to advertisers that it didn't actually have (causing profits to be flattered and then, after much delay, restated). The fall out merely served to compound other misgivings - in particular, the lingering perception that it drastically overpaid for its licence in the 1991 franchise auction.
Recent hostilities find their echo throughout the table. The sharp fall of Enterprise Oil from 79 to 222 notably anticipates the damage to its reputation sustained by its failed attempt to take over lower ranking Lasmo (our survey took place in June, a month before the full outcome of the bid was known). Similarly, the judgment passed on waste services group Attwoods, the target of a hostile bid from US giant Browning Ferris Industries, appears to match that of both City and predator - that under its current management it has failed to keep pace with its peers. It drops from 214 to 253.
Elsewhere, hotelier Forte falls heavily - from 108 to 208 - but still manages to lead the Savoy (down from 196 to 239) where it has recently strengthened its hold on the board. It will come as little comfort to Giles Shepard, the latter's newly ousted chief executive, that under his tenure the Savoy's quality of management was judged by its peers worse than that at Queens Moat. In the rankings of individual characteristics Rentokil and Glaxo share the honours and each head three categories. It is notable here that the scores awarded for characteristics based on 'hard' information - financial soundness and value as a long-term investment, for example - are markedly higher than those that rely on less easily quantified measures of performance such as capacity to innovate and community and environmental responsibility. In the latter category Rentokil again tops the list, undoubtedly gaining from its association with environmental services. Lonrho, on the other hand, not known for its corporate conscience, is regarded as the most environmentally irresponsible of all 260 companies.
British Land's ability to break new ground in the property market is recognised in its third-place appearance in the category 'capacity to innovate'; a considerable - and to some minds, unlikely - achievement given the competition from other sectors more commonly known for such skills. Its formation of a £500 million joint venture last year with currency speculator George Soros - the British Land Quantum Property Fund - has already brought rewards to both parties. The pioneering use of multimedia technology made by Dorling Kindersley, the recently floated children's publisher, is similarly recognised in its second-place position.
GEC - aided by its £1.7 billion cash mountain - secures the greatest admiration of all of its peers for its undisputed financial soundness (together with a score of 9.7, the highest in the table for any characteristic). Land Securities, long regarded as the safest of property companies, and Glaxo, its pharmaceutical counterpart, appear at second and third respectively. Great Universal Stores, meanwhile, famed for its financial conservatism and abilities to hoard, ranks seventh. At the other end of the scale Queens Moat, having reported the second largest loss in British corporate history and still laboriously climbing its way out of a £1.3 billion hole, records a score of just 0.5.
There is the odd anomaly. Some companies receive ratings that appear wholly unjustified on the basis of purely financial criteria. Take Provident Financial, the Bradford-based home credit and insurance group. Despite having raised profits last year by 54% and providing a total return on equity of nearly 32% over the past decade (notably higher than any in the top 10) it comes out far below its peers at the bottom of the banking sector and a lowly 255th overall.
So why the ignominy? The explanation perhaps lies in the difference between Provident's activities and of those who judge it - the High Street clearers. Indeed, the cornerstone of Provident's business - door-to-door lending to low-income households - is the provision of loans to precisely those customers who the traditional banks and building societies have gone out of their way to avoid. In this light, the rating it receives - irrespective of how sound its business - is hardly surprising.
And what of those in the doghouse? Eurotunnel, which makes its third consecutive appearance among the bottom three, seems to have taken up residence. Its continuing travails - doubts over its first year revenues, leaks, fires, delays and the on-going struggle with an £8 billion mountain of debt - are unlikely to free it from its current position in the near future. Similarly, there appears no immediate relief to the tide of woes that have relegated Fisons (now at 252) to a continued stay near the bottom.
It would be tempting to claim that descent to the table's lower reaches acts as an early warning of certain doom. Certainly, the ranking of Maxwell Communications and Mountleigh in 1990 in the two lowest places accurately foreshadowed their demise. Equally, there are those that have previously languished in low positions but have recovered their former standing - Aegis and Asda, 189 and 198, are perhaps the best examples. Indeed, the prospects for some of this year's least admired companies appear bright. Tiny Rowland's recent departure from Lonrho, for example, currently at 259, can only surely speed its ascent.
The full results of the survey, including detailed analysis of each sector, are contained in the report, Britain's Most Admired Companies 1994, available from Management Today for £45. Please contact Valerie Robertson (tel: 071-413 4203; fax: 071 413 4138) or write to Management Today, 22 Lancaster Gate, London W2 3LY.
THE MOST ADMIRED ...
1994 1992 Company Score Total return to
(ann) '84-94 '93-94
1 3 Rentokil 8.24 25.8 8.5
2 1 Glaxo 8.14 21.7 -9.9
3 6 Marks & Spencer 8.03 16.0 15.0
4 9 SmithKline Beecham 7.83 n/a -18.2
5 2 Unilever 7.68 23.4 0.7
6 5 Reuters 7.61 27.5 39.6
7 14 Cadbury Schweppes 7.59 19.1 8.3
8 - Electrocomponents 7.58 15.1 22.3
9 7 Shell Transport & Trading 7.49 18.7 21.3
10 - Bowthorpe 7.38 17.9 13.2
... AND THE LEAST ADMIRED
1994 1992 Company Score Total return to
(ann) '84-94 '93-94
251 148 Yorkshire Tyne Tees 4.27 n/a 47.6
252 211 Fisons 4.21 8.4 -11.6
253 214 Attwoods 4.17 17.7 18.9
254 213 J Waddington 4.17 16.1 13.7
255 183 Provident Financial 4.06 31.5 28.4
256 80 Blenheim Group 3.97 n/a -36.8
257 - Ocean Group 3.94 15.5 -0.7
258 238 Eurotunnel 3.70 n/a -6.7
259 233 Lonrho 3.69 15.7 22.6
260 166 Queens Moat Houses 2.77 n/a n/a.