Fifteen years of Globe 100 change

By Charles Stein, Globe Staff

15 years of Globe 100 All the charts

n some fields — say astronomy or geology — 15 years is no time at all. Blink and you miss it. But in business, the story is quite different.

Business years are more like dog years: A lot happens in a short time. As we publish the 15th edition of The Globe 100, our annual ranking of Massachusetts companies, change, rather than continuity, is what stands out.

Of the 25 companies that topped our list in 1989, the maiden issue of The Globe 100, only seven still exist as publicly traded Massachusetts companies. That's an attrition rate of 72 percent.

A few of the departed companies failed. Many more were gobbled up in consolidations, in which big fish routinely swallow smaller fish. Massachusetts has lost more banks, for instance, than many countries had to begin with.

And then there are the companies that have hung around, such as State Street, TJX, Gillette, Raytheon, Reebok, and EMC. They have survived, and frequently thrived. How does one explain why they are still around, when so many others are not? More importantly, does their success hold any lessons for the rest of us?

The Globe 100 is the business equivalent of a beauty contest. We evaluate the entrants in a variety of categories — return on equity, change in revenue, and change in profit margin — and then calculate a composite score. Standard & Poor's Compustat crunched the numbers for us.

Our categories are designed to encompass the qualities that make for a successful company. To qualify, a company must be publicly traded and be based in Massachusetts, and profitable for the past two years.

A review of the first 15 years of The Globe 100 gives an armchair historian a close-up look at the process of creative destruction. Companies appear and disappear, and new ones show up. Some of those no longer with us were terrific companies, in their day. Digital Equipment Corp. was once the world's second-biggest computer company, after IBM. Bank of Boston was a fixture for more than 200 years. In the 1980s, Lotus Development pioneered a new industry called software.

Digital was acquired by Compaq, which in turn was acquired by Hewlett-Packard. Bank of Boston was acquired by Fleet. Lotus became part of IBM. In technology, companies that missed the wave in computing often didn't stick around to compete in the next round. In banking, companies that weren't quite big enough lost out in the Darwinian process of consolidation. In retailing, Bay State companies were supplanted by bigger, more aggressive national competitors.

What separates the survivors from the rest of the pack?

Consultants have been trying to answer that question forever. Classic business books such as "In Search of Excellence" and "Built to Last" were attempts to find the qualities that surviving companies possess. As for Massachusetts companies, success seems to have been the result of good vision, good execution, good deal-making, and a healthy blend of good luck.

Take State Street, for example. More than 25 years ago, its leader, William Edgerly, took State Street out of the banking business and repositioned it as a giant back office for the mutual fund and pension industries. It was a great call, on two fronts: Banking suffered through some brutal ups and downs, while mutual funds exploded.

"State Street wound up in a sweet spot," said Thomas Finucane, who follows finance for State Street Research (no relation to State Street Corp.)

Fleet survived the banking wars, and given its roots as a modest-size Rhode Island bank, there was no guarantee it would.

"Terry Murray [the former chief executive] took this little bank from Providence and turned it into one of the largest banks in the United States," said Gerard Cassidy, an analyst with RBC Capital Markets.

Murray was a consummate deal-maker, and he pulled off more mergers and better mergers than the competition. Because Fleet had less exposure to the New England economy, it came through the disastrous downturn of the early 1990s in much better shape than its rivals.

Was that luck or foresight? You make the call.

TJX, based in Framingham, pulled off a great merger in 1995 when it bought Marshalls, the discount department store. The business cemetery is filled with failed discounters, including local entries such as Caldor and Bradlees. Marshalls has put together the blend of low prices and quality merchandise thAt consumers want. That blend has allowed TJX to prosper, even in the slow economy of the past few years.

EMC created a better mousetrap. The Hopkinton company was a flyspeck of a business ($123 million in sales) when we published the first Globe 100. But EMC developed a system of storing computer data that became the industry's gold standard. In 2000, EMC's sales reached $8.8 billion. The computer slump has cut those sales sharply. EMC's stock price has dropped from $100 a share to about $9.

Still, consider this: If you had invested a dollar in EMC stock in 1989, it would be worth more than $100 today.

Finally, there is Reebok. In the 1980s and early 1990s, Reebok had the cool sneakers everyone wanted. Then Nike came along and took over the cool market. Reebok wandered in the wilderness for a long time.

In early 2000, its stock sold for $7 a share. Since then, the stock has quadrupled, despite a miserable stock market. By hooking up with basketball star Allen Iverson, Reebok got its cool back and regained some of its past glory.

As James Collins and Jerry Porras wrote in "Built To Last," "Visionary companies display a resilience, an ability to bounce back from adversity."

There's plenty of adversity out there today: a sluggish economy, deflation, SARS, terrorism, and intense global competition.

Some of these forces will claim victims in Massachusetts. Not every company on our list this year will be back next year.

But if history is a guide, some of the best will find a way to survive, and new ones will crop up to replace the departed.

As long as the creative part of creative destruction keeps working, we should come out all right in the end.

Charles Stein is a Globe columnist. He can be reached at stein@globe.com.

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