WHAT MAKES A TOP COMPANY?
Top500 aims to identify the top five companies across 100 business sectors monitored by the Topco Research Department. To be classed as one of South Africa’s best companies, we expect companies to excel in three key spheres, namely financial performance, people, and policy (or accreditation). This ranking is based on the results of the year.
‘The financial performance sphere is the most important sphere in our understanding of being one of South Africa’s best companies.’
The criteria within financial performance speak to the ideas of top companies being large, growing, pro-fitable and productive institutions that are leaders by virtue of their size and dynamism. Financial performance is measured by four indicators: turnover, rate of growth, rate of profit, and employee contribution rate.
Size is both an indicator and an outcome of whether or not a company is a top company. From the perspective of financial performance, turnover is used to proxy company size and is the single largest component in the scoresheet, accounting for the highest weighted points in the criteria. The dynamism of top companies is reflected in their ability to expand and grow, and so we include relative indicators of growth in the scoresheet, accounting for medium-level points.
Top companies are more profitable than other companies and the profitability indicator, which gives a relative indicator of profitability in the scorecard, account for medium-level points.
Top companies are more productive than other companies and the final performance indicator speaks to this characteristic. Overall, the financial performance sphere is the most important sphere in our understanding of being one of South Africa’s best companies, and it accounts for two-thirds of the overall score.
The business sector has an important role to play in promoting equity, social transformation and training, and the people criteria account for one-fifth. Top companies are committed to fulfilling this role, and this commitment is measured using six criteria. Two of these criteria focus on companies’ commitment to the goal of transformation as demonstrated in their employment profiles, the shares of black and women employment accounting for low-level points. Top companies, however, go further than just employment, and are committed to ensuring greater diversity at the level of management and control.
The shares of black and women executive and non-executive directors contribute low points each to companies’ scores. Top companies are required to be at the forefront of people development and thus training is essential and the last indicator in the people criteria, indicated as a low contributor to the companies score.
Top companies are involved within communities and are committed to quality. This sphere of policy and accreditation contributes less than one-fifth out of the total. In gauging companies’ engagement and involvement within communities, this indicator contributes low points of the weight to the overall score. Companies are also judged on the existence of written policies and will be awarded low points. Commitment to quality is proxied, contributing low points to the overall score.
Topco has the added component of having an ear to the ground and boardroom access to talk to industry players and experts.
The exact weightings that have been applied comprise proprietary information, and are therefore not made public.
The final rankings of South Africa’s top companies are calculated after a series of steps:
▪ Data collection
▪ Identifying leading companies according to each individual criterion
▪ Allocation of points
▪ Calculating scores and ranking companies
To be recognised as a Top500 Company there are three spheres of achievement, namely performance, people and policy. Performance is very important in our understanding of a top company, and so it receives two-thirds of the weighting. Using a top-down approach – first
defi-ning what is being measured, then identifying spheres of achievement, and then specifying relevant criteria – makes for a coherent, logical, transparent scoring system.
*Developed by Topco Research Department in partnership with Morné Oosthuizen Deputy Director, University of Cape Town Development Policy Research Unit.