The World's Most Admired Companies

most_admired_intro.top.jpg By Geoff Colvin, senior editor at large


FORTUNE -- The worst storm in the history of modern yacht racing was the monster gale that struck the Fastnet race in the summer of 1979. The Fastnet (named after its turnaround point, Ireland's southernmost spot) is one of racing's most prestigious events, and it had attracted more than 300 competitors, including several of the world's most famous and successful boats. Conditions were fine at the starting gun, and while a storm was predicted, not even the best forecasters had imagined how ferocious it would be. At its worst, waves were 50 feet high and winds were 70 mph, devastating many of the boats and terrifying many skippers. Of the 306 yachts in the race, 69 didn't finish, including some of the most exalted competitors; 23 sank or were abandoned. The winner was the brashest of yachting's young disrupters, 40-year-old Ted Turner. His strategy? "We kept going at full speed during the height of the storm," he told an interviewer. But wasn't he afraid? After all, 15 people died. Yes, he said, "but I was more scared of losing than I was of dying."

That's a story for our time. Now that the skies are clearing after the worst economic storm in modern history -- far more violent than the experts had predicted -- we face a surprising new roster of winners and losers, as our 2011 ranking of the World's Most Admired Companies makes clear. Stress in the recession and financial crisis brought out traits that may not have been noticed when the sailing was smooth. Upstarts became champions. Famed competitors fell behind; some didn't make it through the storm. The findings of our latest survey show a new competitive order in many industries and in business generally, one that will probably last years. How the winners won and the losers lost holds lessons of value for everyone.

The tumult is the greatest we've seen in 13 years of ranking the World's Most Admired. Of the 57 industries studied, 22 are led by new companies this year (see List of Industry Stars), the largest proportion ever. Some of those shifts are dramatic. No longer is Verizon Communications or AT&T the World's Most Admired telecom company; the new titleholder is Madrid-based Telefónica, which dominates Latin America and has far more customers than Verizon or AT&T. The Most Admired metals company is no longer Alcoa but the South Korean steelmaker POSCO, which few outside the industry have even heard of. It's hard to imagine Exxon Mobil not being tops in petroleum refining, but the new No. 1 is Norway's Statoil; it's the world's largest offshore oil and gas company.

The changed order of the business world is particularly evident from another perspective -- our respondents' views about who are the best at critical business abilities. The recession changed global opinion thoroughly. Of the nine traits we ask about, eight have new exemplars (see table at bottom of page); only Apple preserved its status, No. 1 for innovativeness.

The reordering in some of the other categories seems almost unthinkable. Pre-recession, for example, the top-ranked firm for "value as a long-term investment" was Berkshire Hathaway, a result that had the feeling of an eternal verity. The new champ is -- wait for it -- Google. Hold on, there's more. The old leader for "soundness of financial position" was Exxon Mobil, again reassuringly, but the new No. 1 is ... Google. Think of it: If anyone had told you amid the dotcom wreckage of 2002 that in less than a decade an Internet company would be rated the world's best long-term investment, you would probably have guffawed.

Before the recession, the company most esteemed for its ability to attract, develop, and keep talented people was General Electric, possibly the world's most famous management academy. No more. The new champ in the survey is Goldman Sachs, which took a beating in the media but dominated its industry. GE now ranks 58.

Consider that the champion for quality of management is no longer Procter & Gamble; for wise use of assets it isn't Exxon Mobil, and for global effectiveness it isn't Nestlé. The new leader in all those dimensions is McDonald's. Now that's a new post-recession reality to install in our brains: In the opinion of global survey respondents, McDonald's is the world's best-managed company.

How did the new class of champions do it? The question applies equally to companies like Telefónica and McDonald's that roared from the pack to seize leadership and to those like Apple that impressively stayed in front through these traumatic recent years. The answer, distilled from the stories of dozens of companies in varied industries worldwide, is that through good times and bad they dared to differ from how most competitors were behaving.

In the boom years most of today's leaders were financially conservative, shunning the fad for borrowing wildly and refusing to make acquisitions at high prices that may have seemed reasonable during the expansion. They knew that when times inevitably turned bad, the burdens of heavy debt and expensive takeovers could be deadly.

Then, once the recession hit, they again ran counter to trend. Exactly how they did it depended on their situation. McKinsey research shows that in the tech industry, for example, companies that are industry leaders before recessions and stay leaders afterward actually increase headcount and increase spending during the downturn. They press their advantage when others are weakest. Companies that go into the recession as laggards but emerge as leaders move strongly the other way -- they make cuts in those categories, cutting far more deeply than other players. It's the timid, conventional majority in the middle, neither bulking up nor scaling back dramatically, but rather cutting just enough to get through, that come out of recessions the worst.

The economic storm is passing. All the world's major economies grew last year and are forecast to grow this year and next, says the World Bank. You might reason that winning in today's environment demands a different strategy from what's needed to win in a gale. But unlike yacht races, the business race never ends. The large lesson from the World's Most Admired Companies is that the leaders managed in the boom so that they could dominate in the bust, and that's when the great reordering happened. The new champions demonstrated a truth that's important to remember as more benign conditions, with luck, return: Good times may be when you make the most money -- but bad times may be your greatest opportunity. To top of page

The New Business Elite
Top companies ranked by attribute, as reflected in the last survey before the recession (2007) and in this year’s survey.
Attribute Pre-recession champ New champ
Ability to attract, develop, and keep talented people General Electric Goldman Sachs
Effectiveness in conducting its business globally Nestlé McDonald’s
Innovativeness Apple Apple
Quality of management Procter & Gamble McDonald’s
Quality of products and services Anheuser-Busch Amazon.com
Responsibility to the community and environment UPS Statoil
Soundness of financial position Exxon Mobil Google
Value as a long-term investment Berkshire Hathaway Google
Wise use of corporate assets Exxon Mobil McDonald’s
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