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average growth and profitability. But as any regular read- er of the Value Creators report well knows, it is not that simple.7 In order for such improvements to translate into above-average TSR, they must also exceed the expectations that investors have already priced into the company’s stock and that are reflected in the com- pany’s valuation multiple. The capital markets are con- tinuously assessing and readjusting investor expectations for a company’s stock and resetting the company’s valu-

ation multiple as new information about company per- formance becomes available. To exceed these expecta- tions requires delivering a constant flow of positive “surprises.”

7. See Dealing with Investors’ Expectations: A Global Study of Company Valuations and Their Strategic Implications, The 2001 Value Creators Report, September 2001; and Balancing Act: Implementing an Inte- grated Strategy for Value Creation, The 2005 Value Creators Report, November 2005.

The BCG Top 25 Sustainable Value Creators

For more than a decade, the BCG Value Creators report has published rankings of the top ten value creators in the world and in 14 global industries, on the basis of their av- erage annual TSR during the previous five years. This year, we supplement our traditional rankings with a new one designed to identify those large global companies that have been most successful at sustaining superior value creation over a longer period of time.

those companies that have persisted in creating value since the start of the downturn in 2007, we excluded four companies in our sample that did not generate positive average annual TSR over the past five years. The final re- sult is a select list of 43 global companies. We list the top 25 by the size of their average annual TSR relative to their local stock-market average in the exhibit “The Top 25 Sus- tainable Value Creators.”

How did we measure the sustainability of a company’s value-creation performance? We started by focusing on large global companies with a market capitalization of at least $30 billion. We chose to limit our rankings to the world’s largest companies because the bigger the compa- ny, the harder it is to exceed investor expectations and de- liver superior TSR year aer year. One hundred of the 694 companies in this year’s Value Creators database met this initial hurdle.

Next, we ranked these companies by how much their TSR performance outpaced that of their local stock-market av- erage from 1999 through 2008. We chose to measure TSR performance relative to the local stock-market average in order to control for the impact of geographic location and variable market dynamics in different countries around the world. We decided to track performance over an entire decade because we believe that ten years is the minimum time frame necessary to evaluate the staying power of a company’s value-creation performance. Of the 96 com- panies in our sample for which ten-year data were avail- able, 67 beat their local-market average during the period studied.

Although the United States has the most companies on the list, with 11, the top 25 represent a broad variety of countries and regions, with 7 headquartered in Europe, 4 in the Asia-Pacific region (including Australia), 2 from rap- idly developing economies (India and Brazil), and 1 from the Middle East (Israel). And while high-growth, innova- tion-based industries such as pharmaceuticals and tech- nology figure prominently, more traditional sectors such as consumer goods, mining and materials, chemicals, and utilities are also well represented. All told, 9 of the 14 in- dustrial sectors covered in the Value Creators report have companies among the top 25 sustainable value creators.

Of course, past results are no guarantee of future perfor- mance. Executives at each of these companies should be asking themselves, do we know how we are going to sus- tain our superior performance in the decade to come?

However, because consistency is also a key aspect of sus- tainability, we added an additional hurdle. To make the list, a company had to beat its local-market average for a majority of the years under study (in other words, in at least six of the ten years). Forty-seven companies met this hurdle. Finally, because we also wanted to emphasize

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