Business Today

How we did it

The methodology behind the Business Today-Ernst & Young study.

     Print Edition: March 23, 2008

BT Jury for the Best Managed Companies: (L-R) Amal Ganguli, Leading Independent Director; Bakul Dholakia, former Director, IIM Ahmedabad; Subir Raha, former Chairman ONGC; (Background) Rajiv Memani & Devinder Chawla of E&Y, and Brian Carvalho of BT
BT Jury for the Best Managed Companies
The starting point of developing a methodology to identify best managed companies was to define various aspects of a well-managed company. We put together the following pen profile: “Companies that are driven by strong values and governance principles, are high on commitment to innovation, quality, people and society and above all, they should delight their stakeholders through robust all-round performance.” The primary role of management is to balance the requirements of various stakeholders and optimise their returns.

Value creation for the stakeholders thus is the objective for the company and its evaluation, therefore, became the objective of our study. In our study, we also incorporated two key principles:
a) A robust evaluation goes beyond financial numbers and needs to also cover qualitative aspects of the operations of the company.
b) To remove any kind of bias, it is important to view a company from an internal as well as an external perspective.

Building on the above principles, we devised a five-step methodology for selecting the Best Managed Companies in India.

Preliminary screening

To get the widest possible sample, we started with a universe of all companies listed on either the BSE or the NSE, a total of about 4,900 companies. As a first step, we applied certain minimum basic criteria to narrow down to more serious contenders. To make the cut, the companies had to: have been publicly listed no later than January 1, 2002; have minimum revenues of Rs 150 crore; minimum market capitalisation of Rs 150 crore; and also be actively traded on the stock exchanges. To ensure that no significant company was missed out because of these parameters (especially the minimum five-year listing period), we allowed ‘Wild Card’ entries. To qualify as a ‘Wild Card’, the company would have to be in the top 50 companies by way of market capitalisation on the BSE and also fulfil certain basic financial performance criteria. A total of 550 companies made the cut in this round.

Financial shortlisting

The next step was to identify and shortlist companies that have performed better, relative to their peer group, in terms of financial parameters. We classified these companies into sectors and subsectors.

They were then evaluated on specific financial criteria over a period of five years to gauge their growth, profitability, operating efficiency and wealth creation.

Finally, the top performing companies in each sector based on normalisation of scores across subsectors were identified. A list of approximately 80 companies qualified for the next round.

Qualitative assessment

E&Y team: (L-R) Natasha Chadha, Analyst; Mayank Kapoor, Analyst; Devinder Chawla, Partner; Noor Chawla, Senior Consultant; and Bharat Gulia, Manager
E&Y team
In line with our approach of going beyond financial measurement, we looked at the stakeholder perspective in this round. We evaluated stakeholder value created by the company by using both an internal as well as an external perspective.

The internal assessment was done by administering—by survey partner, The Nielsen Co.—a questionnaire to selected companies, evaluating company strategies, systems and processes geared at creating value for its key stakeholders namely investors, employees, business partners and the community.

Another survey was undertaken amongst analysts—from top brokerage houses such as Prabhudas Lilladher, Religare, India Infoline and Angel Broking to ascertain market perception of the performance of these companies in creating stakeholder value. A total of 22 companies made it through to the next stage.

Detailed profiling

The 22 selected companies went through a detailed profiling to better understand and recognise the leading practices employed by these companies. E&Y and BT conducted interviews with the top management of these companies to obtain their perspectives on stakeholder value creation by their respective organisations. Leadership, corporate governance, corporate social responsibility, business and operational strategies as well as best practices were identified and key insights were obtained.

Jury decision

Based on the insights obtained, a jury book was compiled detailing the profiles of the 22 shortlisted companies. An eminent jury consisting of Bakul Dholakia, former Director of IIM Ahmedabad and Advisor, the Adani Group; Amal Ganguli, Leading Independent Director; and Subir Raha, former Chairman of ONGC and Executive Vice Chairman, Hinduja Group India, deliberated on the performance of these companies to arrive at the Best Managed Companies for each of the nine industry sectors namely, Automotive; Banking & Capital Markets; Energy, Chemicals and Utilities; Industrial Products, Materials; Metals & Mining; Retail & Consumer Products; Transport & Logistics; Technology, Media & Telecom. Another round of deliberation ensued to evaluate the performance of each of the sectoral winners and the jury, after much discussion, selected the best among the sectoral winners as the Best Managed Company in India, which this year is Larsen & Toubro.

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