What Determines Whether a Company Is Good or Not?

Calling a public company the best is treading in subjective waters. Diversity of executive ranks, director independence, profitability, workplace environment and dominance in the market can all be looked at as ways to determine a best company. A close examination of the executive ranks of public companies in the Valley area show it is still a man’s world. Of the 50 largest companies there are 200 male executives to 27 females executives. Of the latter number, only three hold the position of CEO: Julia Stewart at DineEquity, the Glendale-based parent of IHOP and Applebee’s restaurants, Mission Valley Bancorp’s Tamara Gurney; and Wendy Simpson of real estate investment firm LTC Properties. Tom Forte, an analyst with Telsey Advisory Group who follows DineEquity, doesn’t look at Stewart as a woman chief executive but as one who successfully ran Applebee’s when it was a separate company and executed a similar business model conversion she is now doing with IHOP. That model makes most of the restaurants franchises rather than company-owned. DineEquity is far along in that strategy but the lack of credit has put up a roadblock. “One of the challenges for franchise operators was the money has not been there,” Forte said. “That is why the process is taking a long time.” When it comes to enterprises where women out-number or equal men as executives the locally-based banks lead the way. California United Bank has three women executives; First Commerce has two women to two men; and Mission Valley’s executive ranks has three of the four top positions held by women. The Cheesecake Factory, DreamWorks Animation SKG Inc., and MRV Communications are other companies with two or more women in the executive suite. When it comes to directors, the numbers are about the same: 314 men to 43 women. In the Valley, those companies in the technology industry tend to lack women directors on their boards. The Walt Disney Co. has the most women members, four out of 13. Half of the Electro Rent board is women, and one third of Health Net’s board is female directors. Those numbers back up the studies done by The Corporate Library, a corporate governance research firm. In “Uneven Progress”, released earlier this year, the firm found that female board participation was still in its early stages. Small minority In S&P 500 companies, women were a small minority and held few positions of responsibility. Only 57 percent had at least two women directors, and 19 percent had more than two, the study found. The diversity issue has received more attention as a result of new U.S. Securities and Exchange Commission rules for disclosing how companies consider diversity of nominees to serve as directors. A look at return on equity, calculated by dividing net income by shareholder’s equity, may also determine best companies. Judged on that figure alone, some of the best companies would be Cherokee Inc., with a nearly 60 percent return on equity; Power-One Inc. with a 22.84 percent return on equity; and Amgen Inc., with a 21 percent return on equity. All those figures are as of July 2010. Teledyne Technologies Inc., the Thousand Oaks-based manufacturer for the aerospace, defense and energy industries, had a nearly 19 percent return on equity as of July. Teledyne is poised to do well in the long-term as it pursues an aggressive strategy of mergers and acquisitions that has made the communications and electronics sectors the most profitable and attractive, said Mark Jordan, an analyst with Noble Financial Capital Markets. Jordan, however, doesn’t pay much attention to return on equity as an indicator of a good company as that number can be negatively impacted by non-cash charges. “I look at that company as clearly one of the better managed organizations that I follow,” Jordan said. “They have a well thought out plan of how you grow an organization both organically and through acquisition.”