Three Simple Steps to a Great Company

First Quarter 2013
Corporate Board Member
by TK Kerstetter

Countless words have been written about how to create and sustain a great company. But in most cases, the steps can be boiled down to this:

1. Understand what it means to have a successful corporate culture.
2. Research the companies that have consistently performed over time, regardless of the environment.
3. Study those companies’ cultural similarities, determine what effect culture had on performance, and implement the same.

Well, if it’s truly that easy, why isn’t everyone doing it? That’s a very good question, and the logical answer is that while these steps are easy to observe and understand, putting them into practice is very hard to do, and it’s even harder to stay the course over time.

However, for those that reach the peak of the culture mountain and are able to sustain that summit, the rewards are great. Let me offer my practical view of how I used this three-step process to identify a truly great company.

Since most people can investigate the proper definition of company or corporate culture, I won’t spend time on the first step. And I know I can’t personally help you with step three—to implement a foolproof corporate culture into your organization—because frankly, even with as much as I’ve spoken on the topic and despite what I learned from the challenges I confronted as the president of a public company trying to sustain a positive culture in the midst of difficult business cycles, I still don’t consider myself an expert. It is during rough times that a company’s culture gets the ultimate stress test. So that leaves step two—identifying a model company that has not only reached its peak but stayed on top during the toughest of times.

To identify such a company, I considered companies that have had stellar bottom lines and stock value growth over the last 10 years. Next, I filter for those companies for which I know a member of the board of directors. Finally, I look for a company with a strong culture that has contributed to its success—a critical element in this exercise. Great companies have a culture that starts at the top and permeates down through the whole corporation, and one in which the board is active in supporting the culture at every turn and decision. It might come as a surprise that after applying all my filters recently, I only ended up with one company that met my personal criteria. That company is Tractor Supply Co., the farm and rural retail supply chain headquartered outside Nashville, Tennessee. So how is it that Tractor Supply Co., with a $6.75 billion market cap, came to be my prime example of a great company?

First, let’s look at its performance. Over the last 10 years, Tractor Supply’s stock price has appreciated 2,000% and specifically grew 55% during the financial crisis period of January 2008 to year-end 2009. Its culture is built on assembling a quality team of employees whose goal is to provide a high level of customer service. Management knows and emphasizes that if the employees are trained and working toward a common cause of satisfied customers, and that if their stores have the right inventory, then the bottom line and stock price will generally take care of themselves. Everyone in the company buys into that culture.

Moreover, these values are pervasive, even at the board level, and the selection process for both board members and executive management succession ensures that this culture is perpetuated from the top, even as executives and board members retire from the company. It is interesting to me, in my years of corporate observation, that most high-performance cultures start with attracting and training good employees and then build from there. Typically these managements and board leaders are very confident, but are quick to recognize and point the credit to the team.

I believe the three steps above are a good road map toward building a strong performance culture in your own company. Perhaps by giving consideration to these points, your board and management will be on a similar path to Tractor Supply’s and others like it. Just remember that board members control a big piece of the puzzle and need to be involved and thinking about the company culture with every decision they make.

 

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