Companies Facing Tough Times Can Still Deliver Superior Total Shareholder Return: Report

The world’s top value creators are often the beneficiaries of key structural advantages or economic tailwinds. But even companies that don’t enjoy such advantages can deliver superior total shareholder return (TSR) relative to their peers, according to a new report by The Boston Consulting Group (BCG).

When it comes to value creation, what really matters is both absolute performance and performance when compared with a relevant peer group. Achieving superior relative performance, even in tough economic and industry environments, is the focus of the seventeenth annual BCG Value Creators report, Value Creation for the Rest of Us, which is being released today.

The 2015 Value Creators Rankings

The report includes this year’s rankings, based on an analysis of TSR, of 1,982 global companies for the five-year period from 2010 through 2014. The rankings list the top ten value creators for the entire sample, for all large-cap companies (defined as those with a market valuation of more than $50 billion), and for 27 distinct industrial sectors.

The median average annual TSR for the companies in the sample was 14.6 percent. The median average annual TSR for the 27 industry sectors ranged from a high of 25 percent (in fashion and luxury) to a low of –8 percent (in mining).

The median average annual TSR of the top ten companies in each industry outpaced their industry averages by between 8 percentage points (in insurance) and 28 percentage points (in chemicals and in construction).

A company had to deliver an average annual TSR of at least 23.3 percent to be in the top quartile of the global sample and 69.2 percent to make the global top ten. And this year’s top value creator—for the third year in a row, the U.S. biopharmaceutical company Pharmacyclics—had an average annual TSR of 108 percent.

Biopharma companies dominated this year’s global rankings, taking four of the top ten spots. In addition to Pharmacyclics at number one, the list includes Ireland’s Jazz Pharmaceuticals at number five, Regeneron Pharmaceuticals at number seven, and Israel’s Taro Pharmaceutical Industries at number eight.

Biopharma’s dominance is even more pronounced in the large-cap top ten, with companies from the sector capturing five of the spots.

Value Creation for the Rest of Us

The body of this year’s report focuses on the challenges facing companies that have not made it into BCG’s annual rankings.

“The companies that make it into our top-ten rankings are a highly selective group,” said Jeffrey Kotzen, BCG senior partner and a coauthor of the report. “It takes nothing away from their achievement to point out that they often benefit from structural factors, such as growing from a small base or happening to be in an advantaged and booming industry. But even a company without such advantages can still deliver superior TSR relative to its peers. How to do so is the focus of our report this year.”

The report profiles two companies and BCG clients—Danish container-shipping giant Maersk Group and U.S. home builder PulteGroup—that faced severe economic headwinds in the aftermath of the global financial crisis, yet still succeeded in delivering TSR near the top of their peer group.

“The management teams at both companies confronted extremely difficult economic and industry environments that challenged long-held beliefs about how they created value,” said Frank Plaschke, a BCG partner and a coauthor of the report.

“They used that challenge as an opportunity to step back, rethink their approach, change their value-creation strategy, and fundamentally transform how they ran the business. As a result, they were able to chart a new course and deliver superior shareholder value relative to their industry and their peers. How they did this provides lessons for every company.”

Value Creation and Transformation

The report distills lessons from the two companies’ experiences and proposes six steps that should be used to focus on value creation and jump-start a far-reaching organizational and business transformation. It is a theme of growing relevance in today’s turbulent economic environment.

“Focusing on value creation can be an extremely useful lens for determining whether transformation is necessary, creating a sense of urgency, and then organizing a company’s efforts,” says Kotzen.

“We believe that by following these six steps, any company can undergo the kind of transformation that Maersk and Pulte have. The result:  better financial performance, stronger and more sustainable TSR relative to peers, and an organization positioned to succeed in the future no matter the economic conditions or market environment.”