B2B | SEPTEMBER 2022

The current stock market sentiment is once again characterized by setbacks and scandals. But there are also companies that defy this environment from a business perspective. Since 2008, the Hérens Quality Corporate Excellence Award has been highlighting these companies and offering them a platform to focus on their corporate quality.

It is not without reason that economics is classified as a social science. Although most economic and financial theories are underpinned or “proven” by mathematical models, reality often looks less mathematical – in other words, rational – at least in the short term. This year, this has been painfully evident in the capital markets. Basically, developments were irrational last year as well, simply on the positive side. But it is in the nature of man – and this is also irrational – that losses hurt more than gains.

The so-called “negativity bias” seems to be omnipresent at the moment, not only in the financial markets but in all walks of life. To some extent, the pessimism is certainly justified and history teaches that mistakes or failures in the past always have an impact at some point. However, if the focus is on objective perception instead of subjective perception, the picture may look less bleak without negating the problems.

This was exactly the impetus when we launched the Corporate Excellence Award in the middle of the financial crisis in 2008. The HQAM Corporate Excellence Award honors companies that manage to consistently achieve high business quality, both currently and over a longer period of time. In this way, the HQAM Corporate Excellence Award provides a platform for companies that are able to hold their own in a difficult market environment (financial crisis, COVID and foreseeably also this year) and add value from a business perspective.

Objective corporate quality awarded

The basis of the analysis for the Corporate Excellence winners is a uniform set of criteria that is based on business management principles and takes into account both a company’s current figures and its performance over the past five years. It should be emphasized at this point that share valuations play no role in the Corporate Excellence Award analysis (and therefore do not constitute investment recommendations) and that the focus is exclusively on business management quality (balance sheet structure, profitability, management, business model, etc.). The core of the analysis lies in the conviction that the business management quality of all companies can be objectively measured or analyzed using identical criteria. This also reveals the differences between countries and sectors, and this quality tectonics in turn provides information about the fundamental state of the regions and sectors.

The HQAM Corporate Excellence Award was first presented in 2008. Since then, regions have been consistently added and since 2014 it has covered the global stock market. During this time, a few insights have also manifested themselves, which are generally considered to be characteristics of a “Quality” company (again, without looking at the rating). HQAM Corporate Excellence winners usually have a focused business model, grow mostly organically, often have a strong anchor shareholder, have a CEO with relevant professional background and experience, take ESG developments seriously and are usually in a good position in this respect (e.g. with a better carbon footprint).

Large regional differences

The analysis universe of the global HQAM Corporate Excellence Ranking is the MSCI World All Country Index. If a ranking is compiled that includes the world’s top 100 companies in the index, emerging market companies in particular stand out. Measured by their numerical representation in the MSCI World (approx. 49%), they are significantly overrepresented among the global top 100 companies at 65%. U.S. companies are roughly proportionally represented among the global top 100 companies (number of companies in the MSCI AC Index 20% / number in the top 100 companies 19%). Europe is lagging behind in terms of the global top 100 companies and has been for several years. European firms represent about 16% of all firms in the MSCI World AC, but account for only 8% of the global top 100 firms.

Consistency and resilience matter

The complete list of winners can be found on the Internet1. The winner of the European HQAM Corporate Excellence Award 2022 is Partners Group AG. The global winner this year was Marketaxess, the same as last year. Marketaxess is a US company that operates the largest bond transaction platform. As already described, the HQAM Corporate Excellence Award winners are characterized by certain features. From a business perspective, these are a very solid financial balance sheet, high profitability and stable growth rates. These characteristics are the foundation that also ensure corporate consistency and resilience. This can be seen impressively in the case of the perennial Corporate Excellence winner in Germany: Rational AG. Rational is a producer of professional kitchen equipment for hotels and restaurants (combi steamers, ovens, etc.). The business model came under massive pressure during the COVID-related lock-downs and restrictions. However, Rational managed to maintain its top position in Germany even under these adverse circumstances and is now emerging stronger from this crisis. That is corporate quality!