Only 53 US companies have been on the Fortune 500 since 1955, thanks to the creative destruction that fuels economic prosperity
AEIdeas
What do the companies in these three groups have in common?
Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics and National Sugar Refining.
Group B: Boeing, Campbell Soup Company, Colgate-Palmolive, Deere & Company, General Motors, IBM, Kellogg Company, Procter and Gamble Company, and Whirlpool Corporation.
Group C: Amazon, Facebook, eBay, Home Depot, Microsoft, Google, Netflix, Office Depot and Target.
All of the companies in Group A were in the Fortune 500 in 1955, but not in 2018.
All of the companies in Group B were in the Fortune 500 in both 1955 and 2018 (and have remained on the list every year since it started in 1955).
All of the companies in Group C were in the Fortune 500 in 2018, but not in 1955.
The list of Fortune 500 companies in 1955 is available here and for 2018 here (based on sales for the fiscal year ended on or before Jan. 31, 2018). Comparing the 1955 Fortune 500 companies to the 2018 Fortune 500, there are only 53 companies that appear in both lists and have remained on the list since it started (see graphic above). In other words, fewer than 11% of the Fortune 500 companies in 1955 have remained on the list during the 63 years since in 2018, and more than 89% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top Fortune 500 companies (ranked by total revenues) in one year or more. For example, Ashland Global Holdings was in the Fortune 500 last year, but its sales have been flat and it dropped to No. 705 this year — the cutoff to make the Fortune 500 this year was $5.4 billion in sales, and Ashland’s sales were $3.2 billion. Many of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g., Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile).
Economic Lessons: The fact that nearly nine of every 10 Fortune 500 companies in 1955 are gone, merged, reorganized, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction over the last six decades. It’s reasonable to assume that when the Fortune 500 list is released 60 years from now in 2078, almost all of today’s Fortune 500 companies will no longer exist as currently configured, having been replaced by new companies in new, emerging industries, and for that we should be extremely thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.
According to a 2016 report by Innosight (“Corporate Longevity: Turbulence Ahead for Large Organizations“) corporations in the S&P 500 Index in 1965 stayed in the index for an average of 33 years. By 1990, average tenure in the S&P 500 had narrowed to 20 years and is now forecast to shrink to 14 years by 2026. At the current churn rate, about half of today’s S&P 500 firms will be replaced over the next 10 years as “we enter a period of heightened volatility for leading companies across a range of industries, with the next ten years shaping up to be the most potentially turbulent in modern history” according to Innosight.
Another economic lesson to be learned from the creative destruction that results in the constant churning of Fortune 500 (and S&P 500) companies over time is that the process of market disruption is being driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high-quality products and services, and great customer service. If we think of a company’s annual sales revenues as the number of “dollar votes” it gets every year from providing goods and services to consumers, we can then appreciate the fact that the Fortune 500 companies represent the 500 companies that have generated the greatest number dollar votes of confidence from us as consumers – like Walmart (No. 1 this year for the sixth straight year with more than $500 billion in “dollar votes” for 2018 – the first time the sales of any Fortune 500 company has exceeded the $500 billion mark), Exxon Mobil (No. 2 at $244 billion), Apple (No. 3 at $229 billion), CVS (No. 7 at $185 billion), Amazon (No. 8 at $178 billion) and General Motors (No. 10 at $157 billion).
As consumers, we should appreciate the fact that we are the ultimate beneficiaries of the Schumpeterian creative destruction that drives the dynamism of the market economy and results in a constant churning of the firms who are ultimately fighting to attract as many of our dollar votes as possible. The 500 top winners of that competitive battle in any given year are the firms in the Fortune 500, ranked not by their profits, assets or number of employees, but by what is ultimately most important in a market economy: their dollar votes (sales revenues).
Bonus Video (below), “Introducing the 2018 Fortune 500 .”
Note that including GM ignores the bankruptcy and the fact the pre existing shares of GM became worthless. The new GM did an ipo, so depending on how you want to define things, todays GM was or was not on the Fortune 500 in 1955.
The list is based on sales revenue and GM has made the list every year based on that criterion.
But the point is it is not the same gm as before the bankruptcy. Yes the new GM made the list but it is not the same legal entity. The name alone did not make the difference, unless you also include merged companies. The old GM was called MotorsHoldings for a while before it was done away with.
The sqme name does not make it the same company, for example todays ATT is not the same company as the 1955 one, it is really SWBT in disguise. You do have to look at the legal entity involved.
New company. Same brands that survived.
I’m relying this year on the list of companies that Fortune says have been on their list since 1955 based on their methodology and criteria.
http://fortune.com/2018/05/22/fortune-500-companies-list-berkshire-hathaway/?iid=recirc_f500landing-zone2
But take GM off the list if you don’t agree with Fortune, and nothing material in the analysis or commentary changes if the list of survivors goes from 53 to 52 firms!
It is reassuring that those share owners who suffer from their company’s destruction,…
can still purchase authentic Kleenex from Kimberly Clark, to wipe away tears. I keep lots of boxes to be around when I suffer the same fate.
Something I find interesting is the rise of house brands that are destroying many consumer staple brands.
Think Kirkland for Costco, or about 40% of Nordstrom products being their own labels.
@Citizen Buddy
House brands that are most likely made and packaged by staple brands.
Yes, I think you are correct.
The brand companies cannot get their full mark-up of course and lose key shelf space at eye level for non-house brands.
Cit
I’m pretty sure Costco doesn’t make anything, so it would make sense that other companies make stuff for them with the Kirkland brand on it. When you buy things by the truckload, I think you can get pretty much whatever you want on the label.
Ron, I agree. My point is that former brand name producers are now making stuff under Kirkland or Nordstrom brands. It’s not as profitable, but the doors stay open at the plants.
Cit
Ahh. OK, got it.
I see Paccar and PPG on the list twice. Is that an error?
Yes, it’s been fixed now, thanks for letting me know. It was partly Fortune’s fault and partly mine. They say that 54 firms have been on the list from the beginning but their list only includes 53 companies. I left off Motorola and included those two companies twice. Everything should be good now, unless Fortune finds the missing company that would make the list of survivors 54 instead of the 53 they list on their website!
Mark,
These numbers are impressive for sure but I wouldn’t be inclined to say that firms that have been merged into or acquired by other Fortune 500 companies have been “destroyed” creatively or in any other way. Those are success stories in most cases.
Do we know what percentage of these numbers those companies represent?
When a company is “seeking strategic alternatives”, then it is usually because they have been weakened from competition – and they want to bail by selling or merging.
Sure, maybe in some cases it’s more “creative reorganization” than “creative destruction.” Although if Firm A and Firm B merge to become Firm C as a result of changing market conditions or changes in technology or economies of scale/scope, it’s probably still accurate to describe the disappearance of Firms A and B in their original form as a type of “destruction.”
The Dow Chemical and DuPont merger to DowDuPont is one example. Since both of those original firms were on the Fortune 500 separately in 1955, Fortune includes that merged firm as being on the Fortune 500 since 1955. The original firms as they previously existed are gone, and a new merged firm has emerged. Maybe that’s a good example of a case that is more “creative reorganization” than “creative destruction”?
Not sure about how to determine the percentages….
Note that one of the impulses of socialists is to freeze this process, make all the big companies quasi-government and protected from being destroyed. That is why they hate microsoft and google in Europe. Freeze all the things (ie jobs, companies, rent)!!!
Note that this also preserves the current managment and overhead structures of the companies. In particular areas like shareholder relations, PR, audit, treasury, etc tend to be duplicated at each organization, so a merger eliminates a lot of staff due to overlap in this area.
But, Google and Amazon are “monopolies” and must be broken up or they will remain monopolies forever.
I am sure there are plenty of people who lament the demise of Studebaker. Not me. My Uncle Charlie (who was a pretty damn good mechanic) once told me that the biggest problem with Studebaker cars was that they came with Studebaker motors.
But for a mechanic, that’s a good thing, right? 🙂
the info seems interesting. many times the simple businesses evolve with good cash flow and reasonable moats. many are food, engines, avionics, beauty, food and the basic consumables that americans need and unfortunately dont need.
the monsters gobble up their competitors and retain their status with recurring fcf and good credit ratings.
the fact is they produce consistent roi, decent yoy returns on aggregate and reasonable dividend growth (as many have familial holders and long standing institutions) .
future foward:
goog, fbook, softbank, and the goliaths that are making nominal (yet future forward prosperous investments) in todays nascent tech/bio firms — a thing that will keep the big boys big.
I see limited change in the scope of this list. they will be there but bear a foreign name soon.