Fortune 500 firms 1955 v. 2017: Only 12% remain, thanks to the creative destruction

AEI ^ | 10/21/2017 | Mark J. Perry

[SeekAndFind]

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, Colgate-Palmolive, Deere, General Motors, IBM, Kellogg, Procter and Gamble, and Whirlpool.

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 2017.

All of the companies in Group B were in the Fortune 500 in both 1955 and 2017.

All of the companies in Group C were in the Fortune 500 in 2017, but not 1955.

The list of Fortune 500 companies in 1955 is available here and for 2017 here (based on sales for the fiscal year ended on or before Jan. 31, 2017). Comparing the 1955 Fortune 500 companies to the 2017 Fortune 500, there are only 60 companies that appear in both lists (see companies in the graphic above). In other words, only 12% (and fewer than 1 in 8) of the Fortune 500 companies in 1955 were still on the list 62 years later in 2017, and more than 88% 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). 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 9 of every 10 Fortune 500 companies in 1955 are gone, merged, 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from now in 2077, almost all of today’s Fortune 500 companies will no longer exist as currently configured, having been replaced by new companies in new, emerging industries, and for that we should be extremely thankful.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 dollar votes of confidence from us as consumers – like Walmart (No. 1 this year at $486 billion in “dollar votes” for 2017, and No. 1 in 10 of the last 13 years), Apple (No. 3 at $216 billion), ExxonMobil (No. 4 at $205 billion), CVS (No. 7 at $178 billion), GM (No. 8 at $166 billion) and Amazon (No. 12 at $136 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).

Update: The table above has been updated to remove CVS and add Colgate-Palmolive. A company called CVS is included in Fortune’s 1955 list but it must be a different company than the current CVS Pharmacy company, which didn’t start until 1963. By mistake, I left Colgate-Palmolive off the list, it’s now been added. Thanks to Gary Hoover for noting these issues in the comments.

• Fortune 500

[Paladin2]

How about the Dow?

[logitech]

ping

[bigbob]

Once a company goes public, it needs to continue to show growth to maintain it’s stock price, and it’s easier to grow by M&A than organically. Plus, the larger and more dominant a company becomes the more it’s investments and new product development resources are focused on existing customers and markets. This is “The Innovators Dilemma”, and creates opportunities for more innovative and agile new entrants to surpass them, and ultimately create new growth, which then makes these new companies lucrative acquisition targets. There are countless examples, but perhaps one everyone can relate to is Kodak, which was busy making it’s film business bigger and better while new entrants leapfrogged them with digital photography.

Big fish eat little fish if they want to survive.

[Chode]

i wonder if the Fortune list released 60 years from now in 2077 might only be six or twelve and look more like the Rollerball sponsored companies of Energy, Food, Entertainment, Housing, Aviation, etc

[sparklite2]

In the mid-1970s, Studebaker was part of the MLW-Worthington company in Canada. The company arranged to sell 25 locomotives to Cuba but the US objected.  Trudeau protested against American interference and President Ford eventually backed down. Canadians pondered at what national security interest could be impacted by selling trains to Cuba.  People imagined the sight of locomotives emerging from the water and chugging up Miami's beaches, trailed by high rooster tails of sand.

[sparklite2]

Kodak, which was busy making it’s film business bigger and better while new entrants leapfrogged them with digital photograph

---

Except Kodak wasn’t making its film business bigger and better. German and Japanese companies were making 35mm film, paper processor and film processors with superior engineering. And because Kodak’s R&D was so long, by the time printing equipment hit the shipping dock, it was obsolete. Kodak essentially gave away their crappy equipment to get/keep the photo-finisher’s business.

What’s ironic about Kodak losing the digital business is that they invented digital photography. But like the caterpillar who looked at a butterfly and said, “You’ll never get me up in one of those,” Kodak executives refused to pursue invest in digital development.

[grey_whiskers]

i wonder if the Fortune list released 60 years from now in 2077 might only be six or twelve and look more like the Rollerball sponsored companies of Energy, Food, Entertainment, Housing, Aviation, etc

I think you forgot Soylent.

[KarlInOhio]

How about the Dow?

Of the 30 on the Dow in 1955 the survivors are:

duPont
General Electric
Proctor & Gamble
Chevron (was called Standard Oil of California) which was off the Dow for a while and is now back on.
Exxon Mobil (was called Standard Oil of New Jersey)
United Technologies (was called United Aircraft Company)

Info from https://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average

[PAR35]

Several companies on that list didn’t exist in 1955.

Lockheed and Martin Marietta merged in 1995.

Navistar was created in 1986 from what was left after most of the International Harvester assets were sold off to other companies.

What is now AT&T is the Southwestern Bell division of the old pre-breakup AT&T. They acquired some of the other old divisions of the old AT&T, but others are now known as Verizon while Bell Labs became Lucent which was taken over by Acatel which was taken over by Nokia.

There may be others.

On the other hand, the list came out just in time for Monsanto (which isn’t really Monsanto - it was gobbled up in about 1999 by Pharmacia.) The current Monsanto (created out of Pharmacia assets) is going to disappear again in a few months.

[Paladin2]

~ 20%.

Someone should examine 23,000 vs inflation and whatever lame methodology used to make the replacements along the way.

[Chode]

heh heh heh heh, so i did

[FamiliarFace]

It surprised me to see Avon on the 2017 list. I wonder how long they will remain on it.

[Paladin2]

Thanks for your post!

[CurlyDave]

...The company arranged to sell 25 locomotives to Cuba but the US objected. Trudeau protested against American interference and President Ford eventually backed down. Canadians pondered at what national security interest could be impacted by selling trains to Cuba...

Anything which advances the economy of an adversary is a hit on our national security. At that point they had not watched as Ronald Reagan won the cold war by bankrupting the Soviet Union.

The locomotives themselves would not lead the charge, but what the locomotives enabled them to make might.

[Chgogal]

Bookmark

[Mozzafiato]

I was curious why I did not see Ford on these lists, so I did some research. In 1956, Ford Motor Company became a public company (IPO launched) and immediately went to number 3 on the Fortune 500. Currently, they are #10.

[Jeff Chandler]

What is now at&t is the Southwestern Bell division of the old pre-breakup AT&T.

[nd76]

Another reason is when a family dominated publicly traded company runs out of family members interested in running the business.

Case in point: Gerber Products Company, which was #348 on the list in 1955 and #307 in 1994 at the time when the shareholders of the company sold their shares to Swiss pharmaceutical firm Sandoz (now Novartis).

Frank Gerber founded the company, and his son Dan made Gerber a household name nationwide, with trusted baby food products and one of the most notable trademarks in American commerce. Dan had four daughters and one son. The daughters all married Ivy League types who were nice guys (one of them was a very successful real estate investor and two others had desk jobs within the company) but with little desire or aptitude for running a business which had expanded to places like continental Europe and South Africa. The son spent his adulthood driving race cars and writing poetry; he tried teaching high school students but didn’t make it through his first semester.

Dan died in 1974, and by 1990, with no capable family members left to receive the torch, the Gerber heirs and their advisors decided that the best course of action was to sell the company as a going business. It took them a few years (they openly were courting Anderson-Clayton, and quietly were talking to Campbell Soup), and ended up with Sandoz, which became Novartis. Novartis got out of the baby food business when they sold Gerber to Nestle, its major international competitor.

My father was a career Gerber employee (1948-1984), and I am a Gerber baby, having grown up in Fremont, Michigan, Gerber’s HQ.

[niteowl77]

Another reason is when a family dominated publicly traded company runs out of family members interested in running the business.

Third generation business failure seems to be the norm out here in Flyoverville.

The founders start a business to produce goods or services they are interested in; "grandpa" (or "grandma") is respected by the employees.
The founders' offspring take over the business and try to increase assets; the employees are ambivalent about the "kids."
The founders' grandchildren take over and either spend the thing into the ground or liquidate the assets so they can live it up; the employees think the "grandkids" are out-of-touch a$$holes.