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The rightful criteria for a good company


2006-08-22
China Daily

Ask a mainland business leader what his biggest ambition is, and he is likely to say, at least in public, that he wants his company to make it into one of those world-wide corporate ranking lists.

Other than bragging rights, inclusion in those listings obviously has its privileges. As a business reporter, I have received frequent calls from public relations people who suggest that I owe it to my professional integrity to interview their clients simply because they are executives of Fortune 500 companies.

We really shouldn't be taking those surveys too seriously. Most of them rank companies for their profitability. For instance, Forbes China's Top 100 Most Outstanding Companies survey is based on returns on total and net assets, the rates of sales and profit growth, and the profit margin.

This is not to question the validity of the surveys, which, I am sure, were compiled with the greatest care and transparency. But at a time when building a harmonious society is taking precedence over the blind pursuit of economic growth, it may not be sufficiently enlightening to rank companies solely on how well they have done for their shareholders.

If profitability is the only criterion, the handful of property companies in Hong Kong will surely rank high in many surveys. This is because these companies have consistently produced huge profits year after year by securing a stranglehold on the supply of apartments in land-scarce Hong Kong.

But hardly any property company in Hong Kong has ever been held up as an example of good corporate citizenship. Aside from a few property developers, who have been lionized in the popular press for their extravagant lifestyle and occasional high-profile amorous exploits, the property oligarchy has never endeared itself to the public.

The business tactics of this property oligarchy were widely seen to have contributed significantly to the explosive surge in property prices throughout most of the 1990s, allegedly by manipulating the supply. In the several years before the bubble burst in the winter of 1997, property prices shot up to levels few prospective home-buyers in Hong Kong could afford. Many Hong Kong families were forced to squeeze into tiny apartments averaging no more than 50 square metres in size.

Nevertheless, these companies consistently win praise and garner the support of stock analysts, who routinely give them high ratings based on criteria that are not dissimilar to those in the Forbes survey. For these stock market darlings, winning a place in the survey of any international business publication is undoubtedly a delightful icing on the cake.

Large businesses have long maintained that in the process of making money, they have made huge contributions to society by creating employment, promoting economic growth while satisfying consumers' needs. This is undoubtedly true in a perfect market that is transparent and fair. But markets are never perfect. The Hong Kong property market has forcefully demonstrated that what is good for the oligarchy may not be good for the economy or the general public.

A truly outstanding company, I believe, should be one that has made significant contributions to raising people's standard of living and improving their quality of life. Making profit is, of course, a given.

Based on these criteria, a company that keeps hacking down trees, levelling hills and filling up the sea to build monstrous tenement blocks that are a discomfort to live in and a pain to look at would never qualify. Nor would a company that distinguishes itself solely by its capacity for squeezing the production cost.

To their credit, some Hong Kong property companies are known to have made substantial donations to education, healthcare and other charities. Perhaps the mainland companies that owe their high profits to the hard work of migrant workers should spare a thought for the welfare of those employees who are not seen to be sharing their due piece of the economic pie.

 
 
     
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