(FORTUNE Magazine) – What does it take to join the elite club of the world's most admired companies? When FORTUNE, with the help of worldwide consulting firm the Hay Group, set out to create the first-ever list of global companies ranked by their peers, we had certain expectations of what we would find. After all, FORTUNE's lists of America's most admired companies over the past 15 years have become the business equivalent of the Academy Awards. So we knew that you needed a terrific product or service, shrewd financial management, and far-sighted marketing that, as the catch phrase has it, thinks global and acts local. But the companies you'll find on the pages that follow in our brand-new global list also have something else: guts. Their managers are willing to take some risks so bold they may cause shareholders, stock analysts, and employees to seriously question their sanity--at least until they turn out to have been right.

Jack Welch, CEO of General Electric, found that out a decade ago. GE is the world's premier maker of electronics and electrical equipment, and No. 1 in quality of management (one of nine attributes such as innovativeness and global effectiveness that each company is rated on). Ten years ago Welch famously reinvented the company, dumping any business that didn't look likely to capture either first or second place in its industry worldwide. Observers gasped. (Including an editor at this magazine, who questioned a story claiming that Welch had laid off more than 100,000 people. That figure was so high, the editor said, that it had to be wrong. It wasn't.)

Robert Ayling, who came on board as CEO of British Airways last year, is likewise giving the carrier a turbulent ride. Despite some tough antitrust barriers, Ayling is determined to craft alliances with other airlines around the world to expand BA's global reach. He has outraged some shareholders by replacing the Union Jack on the planes' tail fins with "world art" that some find offensively primitive. He also imposed new working conditions on BA's cabin crews without their union's approval, resulting in a summer rash of labor troubles.

Nonetheless, in a far cry from its old nickname "Bloody Awful," BA was named the world's best airline by the executives we surveyed. Perhaps they've flown in first class, where you now get a bed you can actually lie down on, and a wall between you and the next guy. Ayling, who cares passionately about what passengers think, also launched BA's first-ever global customer survey. "You might argue with some of what he's done," says Salomon Brothers analyst Julius Maldutis, "but the plain fact is that BA's service to customers is a notch above what its competitors offer. And it's getting better all the time."

What separates the most admired companies from their peers is that they have the courage to stick to their convictions, even in the face of strong criticism. Coke's ailing CEO, Roberto Goizueta, and his heir apparent, Douglas Ivester, know that well. The soft drink company, which gets about 80% of its profits from markets outside North America, is consolidating its worldwide bottling system into a small number of well-capitalized megabottlers. The strategy got Wall Street fussing over short-term tremors in Coke's earnings, and what some see as greater vulnerability to currency fluctuations abroad. In August, hoping to calm everybody down, Goizueta wrote a letter to shareholders. "We do not manage our business by five-minute ticker increments, or even the day's closing price," the letter said. "We cannot control that."

In our survey, respondents focused on what Coke can and does control: They named it the No. 1 company in the world in product quality, attracting and developing new talent, and overall global effectiveness. Evidently undaunted by the stock's late-summer blues, they also voted Coke the world's best long-term investment.

Another bold risk taker--Sony's Nobuyuki Idei--wins similarly high marks. Sony was voted the most effective Asian company at doing business globally, the best company in Asia at wooing and winning topnotch people, and the most innovative electronics company in the world. Since he took over two years ago, Idei has shaken the place to its foundations, revamping the board of directors, restructuring major divisions, and clamping down on U.S. operations--especially Sony Pictures Entertainment. The studio, which had been piling up debt at an alarming pace, seems poised for a comeback, raking in $1.2 billion this year with hits like Men in Black and Air Force One. Idei is also blazing trails in new areas--including some potentially dicey businesses--like advertising, satellite television broadcasting, and personal computers.

Five, ten, or 20 years from now, who will have taken the right chances? Naturally, we'd all appreciate a clue. So the people responding to our survey--managers, directors, and analysts who rated themselves as well as their rivals on nine corporate attributes--were asked to write in comments, including votes of enthusiasm for any competitors that weren't mentioned by name in the survey (usually because their revenues are too small--so far, anyway--to qualify them for our list). The top recipient of such honorable mentions: BMW. Its automotive rivals praised its smart management and great cars so highly that its scores for global effectiveness would have put it ahead of both Daimler-Benz and Honda if the Bavarian shop were bigger. Another star performer in Europe, ABB, was too small in its industry for the list.

Although U.S.-based companies dominate some categories, a quick look at the industry rankings on the previous pages should dispel any suspicion that the Yanks have somehow rigged the game: Plenty of losers are American too. Nobody responding to our survey seems to have forgotten that Pepsico's profits took an 85% free fall in the fourth quarter of last year, partly due to huge losses in the company's worldwide soft drink business. And Archer Daniels Midland, notorious for price-fixing in the U.S. (where the company has already paid $100 million in fines), may be in for more of the same trouble elsewhere. Authorities in Europe, where ADM gets about a third of its sales of the oil-seed derivative lysine, began last June to investigate the company's pricing policies there.

Besides their willingness to take risks, what do the winners have in common? While no one strength is enough in and of itself to boost any company to the top of the global heap, a knack for finding, nurturing, and keeping smart employees (see box) correlates most closely with an overall high score. Says Bruce Pfau, Ph.D., the Hay Group's expert in assessing corporate culture: "Great companies treat their cultures as assets." Perhaps because innovativeness is so closely linked to keeping first-rate people motivated, it counts heavily too. The world's best innovator, according to the survey, is Disney, which also ranked among the most admired companies in the U.S. (see table). "We create a new product--a book, a movie, something--every five minutes, and each one has to be superb. Our goal is to do it better every time out," says CEO Michael Eisner. "But our real product is managing talent. That's what we really do here, and we never lose sight of that--because without that, what have you got?"

In Europe, the survey's top marks for innovativeness and for attracting and keeping the best people went to two enterprises with very little in common--German media empire Bertelsmann and oil giant Royal Dutch/Shell Group, respectively. It's easy to see why Bertelsmann, which also took Europe's top rating for overall global effectiveness, scored high in creativity: Founded in 1835 as a printer of hymnals, the privately held company has long been admired in Germany for its decentralized management style, with managers at each far-flung division encouraged to behave as if they owned the business. Bertelsmann's record divisions in Europe and Asia are known for spotting and nurturing local talent, like Japanese rock star Masahara Sukiyama.

Royal Dutch/Shell, meanwhile, attracts and holds on to terrific employees even in the midst of a shakeout in the petrochemical business. In fact, Shell is plunging deeper in, beginning with a $2 billion buyout of Montell, formerly a joint venture with Italian partner Montedison. The deal will give Royal Dutch/Shell about 15% of the world's production of polypropylene, a plastic used in cars and carpeting.

A propensity to shake things up, even when they are already going well, characterizes the leading companies. "The most admired companies set what Jack Welch calls 'stretch objectives' that pervade every part of the organization," says Melvyn Stark, a Hay Group vice president. Striving is all, the reasoning goes, and good can always get better. Just look at Toyota, which, as an executive at another auto company puts it, "has been a world beater for a long time and is now getting even scarier." Ranked No. 1 in product quality for the auto industry worldwide and in first place among Asian companies for the soundness of its financial position, Toyota recently made a series of announcements that has competitors biting their nails. First the company began a 20% expansion of its global manufacturing capacity, to about six million vehicles a year--an expansion that is taking place almost entirely outside Japan. Then, in late summer, Toyota began telling analysts that it intends to nearly double its operating profits, to about 9% of sales, by cutting costs while gaining market share.

Nobody doubts that Toyota can do it, and the redesigned Corolla, for instance, speaks volumes about how: At $11,908, the car will be 10% cheaper in the 1998 model year than in 1997, even though it will have a more powerful 1.8-liter engine and more standard equipment than the current version, thanks to what the company calls "smart engineering"--designing cars that do more and cost less. Ryuji Araki, Toyota's managing director for finance, estimates that the company could cut another 25% out of the costs of building new vehicles.

The cutting-edge companies also use information better than their peers. Take J.P. Morgan, rated the world's most admired bank, ahead of Citicorp, Deutsche Bank, Credit Agricole, and Industrial Bank of Japan. Morgan's current star status in international investment banking is all the more remarkable when you consider that not so long ago it was a staid, not to say stuffy, outfit that specialized in commercial loans with a little discreet dealmaking on the side. Today Morgan, which gets more than half its revenues and profits from outside the U.S., is shoving aside its European rivals in lucrative megamergers. Morgan's role as a lead banker in Swiss pharmaceuticals behemoth Ciba-Geigy's $36 billion linkup with Sandoz "was a wake-up call to banks all over the Continent," says a British financier who asked not to be named here.

Morgan's chief edge: A strong focus on industry specialization, which has helped to convince potential clients that its bankers bring an extra layer of expertise to the bargaining table. It's a sales pitch that European banks, which never considered industry-specific knowledge all that important, have lately been struggling to copy. Nor has Morgan been idle elsewhere. Last year the bank underwrote a $1 billion Eurobond issue that marked Russia's first appearance as a borrower in Western markets since 1917. Morgan also established itself as the premier investment bank in Latin America, raising $1.1 billion in a public offering for Telefonica de Peru and underwriting more U.S. dollar-denominated Latin American debt issues than anyone else on Wall Street.

Detractors have noted that the bank's globetrotting has yet to produce much in the way of higher profits; earnings slipped 14% in this year's second quarter because of high expenses, some related to globalization and some to losses in the firm's trading on its own accounts. Investors, apparently taking the long view, don't seem worried (Morgan's shares have since risen by 5.3%), and neither do our survey respondents. A typical, and perhaps somewhat wistful, write-in comment: "No bank right now is more focused on seizing opportunities than J.P. Morgan, and certainly nobody in the business is more global."

As companies increasingly play hopscotch across national boundaries and run into widely differing laws and regulations, one corporate concern--responsibility to the environment and to the community--seems to take on an importance unmatched in our domestic survey. Many respondents praised, for example, French oil refiner Elf Aquitaine's efforts to protect marshlands from oil leaks; Federal Express' invention of a device that makes airplanes quieter so that people who live near airports can get a decent night's sleep; and Japan Airlines' contributions to a range of worthy causes.

As if to prove the point, the most admired company in Britain, British Petroleum, also ranks No. 1 among its compatriots in environmental responsibility. That may be no coincidence. Says John Browne, BP's CEO: "You have to be responsive to the communities where you operate, and you can--as long as you perform extremely well for shareholders. Without that, nothing else is possible."

Browne knows what he's talking about. "Our goal is not just to clean up damage but to create no damage at all in the first place," he says. Toward that end, BP scientists spent several months conferring with experts in Alaska on the question of what happens to the atmosphere when volatile compounds escape from oil tankers during loading and unloading. The company installed safeguards against those leaks--and then spent about $80 million to add the same protective equipment to a BP facility in Scotland that processes 10% of Europe's oil. "Unlike in the U.S., there was no regulatory pressure at all to do that in Scotland, but we did it voluntarily," Browne says. "It's our way of saying to people, 'We're here to stay.'"

All this gratuitous tree-hugging might seem a bit risky for any company with shareholders to answer to, but there hasn't been a peep of complaint. No wonder: BP's total return to shareholders over the past five years exceeds 330%, nearly three times that of the S&P 500, which hasn't exactly been doing poorly. BP's results may have the rest of the oil industry turning green (with envy, that is): Exxon, for example, reported a relatively paltry 135% return over the same period.

Browne believes that attention to the environment boosts profits by improving people's productivity. "It turns out that what may look like a constraint is actually an opportunity," he says. "We've found that the more you ask people to think of themselves as part of the wider world, the more you relieve a perceived conflict between people's private beliefs and their public selves--and hence, the better they do their jobs." Perhaps not surprisingly, Browne has his own take on the "think global, act local" mantra. "However big we get," he says, "we are nonetheless made up of tiny parts. And the tiny parts matter." In a world that seems these days to be shrinking by the hour, could it be that the real risk lies in not thinking that way?

REPORTER ASSOCIATE Jeremy Kahn