What price respect? If the concept seems too high-minded for pecuniary assessment, just consider that when it comes to calculating asset values -- physical, financial or reputational -- Wall Street is never at a loss. Investors pay up for respect, in part because respected companies tend to hold their value longer.
"Respected companies aren't going to fall as far in the bad times, and they come back better," says David Hartzell of Cornell Capital Management, a participant in the survey that helped Barron's produce a list of the 100 most respected companies. (See the full list at the bottom of this article.)
In 2009's roller-coaster market, the top-ranked stocks generally experienced lower volatility and outperformed during the bear leg. And now, even after the broad market's furious rally, the value of respect is still felt: For the most part, shares of the most respected companies are either above or not much below their pre-Lehman-bankruptcy levels and have beaten the market since that crisis erupted.
Indeed, Apple (AAPL, news, msgs), which topped the list, is above its pre-crisis stock price. If an Apple shareholder fell asleep in the summer of 2008 and didn't awaken until Christmas 2009, he'd hardly notice anything had been amiss, based on the stock price.
The top five scorers are mostly a reshuffle of last year's top percentile. Johnson & Johnson (JNJ, news, msgs) slipped to No. 2 from 2009's No. 1, and Berkshire Hathaway (BRK.A, news, msgs) dropped to fifth place from second. The ever steady Procter & Gamble (PG, news, msgs) remained at No. 3, and IBM (IBM, news, msgs) jumped 10 notches to fourth place. But Wal-Mart Stores (WMT, news, msgs) fell to No. 12 from fifth place; the discounter's stock was one of the best to own in 2008, but not last year.
Conversely, there is a heavy price to pay for disrespect. Shares of the least respected corporations in our 2010 ranking, such as Citigroup (C, news, msgs) -- dead last -- are so far below pre-Lehman levels that a recovery to those halcyon days seems unimaginable, despite the broad market rally. Russia's Gazprom (OGZPY, news, msgs), No. 99, also is significantly below pre-crisis levels.
Mickey D's, which arguably deserves respect for both, is No. 7 this year, just as it was in 2009.
Survey participants say respected companies have strong management, good governance, valuable products and services, and strong stock returns. They treat their shareholders, customers and employees well. They act ethically. And while some money managers name respect as the first cut in their investment process, others say respect is more often the result of a sound investment process.
John Roberts, a portfolio manager with Denver Investments, contends that respect answers the question "Is management going to be a good steward of our clients' money?" He says, "Respect takes a long time to build, and it's easily destroyed."
The most powerful illustration of that is General Electric (GE, news, msgs), once a textbook example of Corporate America at its best. GE has continued a precipitous slide in our survey that began after 2005, when it topped the list, and that recently has intensified. "GE was a financial company dressed up in industrial drag," says David Anderson of Anderson Hoaglin.
GE plunged in our rankings to No. 74 from 43 last year and is now just above the bottom quartile, something that only a couple of years ago few probably would have considered possible. Likewise, Wells Fargo (WFC, news, msgs), No. 49, down from 21, and ConocoPhillips (COP, news, msgs) No. 46, from 28, have lost significant respect among the institutional money managers who participate in our survey. Other companies, however, have seen their respect scores rise sharply. Google (GOOG, news, msgs) climbed to No. 8 from 23, and Qualcomm (QCOM, news, msgs) jumped to No. 28 from 53.
The survey solicits professional money managers for their views of the 100 largest companies in the world based on total stock-market capitalization on Dec. 31, as determined by Dow Jones Indexes. This year's survey, conducted with the help of Beta Research in Syosset, N.Y., elicited responses from 70 investors across the country, ranging from proprietors of small advisory firms to the chief investment officers of money-management giants overseeing hundreds of billions of dollars.
Participants were asked to select one of four statements for each company: "highly respect," "respect," "respect somewhat" or "don't respect." A point value was assigned to each response, with the highest accorded to "highly respect," and a mean score was tabulated for each. In the case of ties, the higher ranking went to the company with the most "highly respect" votes. The managers also were asked to rank the factors they consider in determining respect for corporations.
