We want to supply your readers with some facts that directly contradict the conclusions drawn in your article about the American Business Conference (Washington, April). The article said, "And 15% growth hardly describes the segment of the business community that ABC claims to represent. By contrast, the compound annual growth rate from 1979 to 1983 of the INC. 100 list of the country's fastest-growing public companies was 115% . . ."
Fact: ABC is an organization of highgrowth medium-size companies with annual revenues from $25 million to $2 billion. The growth rate of the INC. 100 defies common sense. At a 115% annual rate, the annual sales of ABC member MCI, for example, would be over $3.5 trillion in just 10 years -- about as big as the 1984 U.S. gross national product.
Fact: The article cited six examples of supposedly poor-performing ABC companies. As a result of our review process, which began on January 1, 1985, three of these companies are no longer members of ABC. Of the other three, one has grown at a 41% annual rate over the past five years. The article cited the Materials Research Corp. for having a loss in 1983 -- incidentally, its only loss since 1958. Yet, the article failed to note that the company's revenues increased by 56% in 1984. The third member cited, Millipore Corp., has grown at a 19% annual rate for the past 10 years.
The article said, "But [ABC's] membership, as a whole, doesn't represent the fast-growth segment of the economy at all" (emphasis added). However, according to statistics compiled by McKinsey & Co., ABC is made up of exceptionally high-growth medium-size companies.
Fact: If there had been a mutual fund of publicly traded ABC companies, a $1,000 investment in the fund in 1973 would have grown to $22,742 by 1983. By contrast, the best mutual fund (Fidelity Magellan) would have produced only $6,319. A $1,000 investment in a mutual fund based on the Standard & Poor's 500 or the Dow Jones Industrial Average would have yielded less than $2,300.
Fact: Over the 1978 to 1983 period, the publicly traded ABC companies created new jobs 10 times as fast as the economy as a whole and almost 3 times as fast as the "excellent" companies chronicled by [Tom] Peters and [Robert] Waterman. Over the same period, employment in the Fortune 500 companies fell.
Fact: Over the 1978 to 1983 period, sales of publicly traded ABC companies grew by 18.4% annually, while sales in the overall economy grew only 7.1%. By comparison, the sales of the Fortune 500 grew by 7.9%, and the sales of the "excellent" companies grew only 12%.
Fact: During the 1978 to 1983 period, aftertax income fell by 2.7% per year in the U.S. economy, but it rose by 19.7% per year in the publicly traded ABC companies. This rate was more than three times as fast as the Fortune 500 and almost twice as fast as the "excellent" companies.
ABC is the only major business organization in America to require all members to meet a tough growth test to qualify for membership. It is the first and the only major business organization to have undertaken a growth-based membership renewal process, which will continue throughout 1985 as members' terms end. That ongoing process is designed to ensure that ABC's membership will be composed of the high-growth companies of the medium-size sector of the American economy during the next 5 years, 10 years, and beyond. Any observer taking a snapshot of our membership at one moment in time, particularly at the beginning of the renewal process, will inevitably find that, as is the case in any fund of growth-company stocks, some businesses are not keeping up. That is why we have a renewal process.
Any sophisticated businessperson knows that the elements that constitute a good growth company are not one-dimensional. Our process does not avoid complicated issues -- like divestiture, merger, and strategic decisions that may reduce short-term earnings but enhance long-term growth -- in trying to put our members' sales and earnings numbers into a proper business context.
The author replies: Messrs. Levitt and Albertine are using statistics here as a smokescreen. They don't address the substantive reporting in my article, and they ignore entirely my central point.
I never claimed that ABC was a roster of poor companies. I simply reported that ABC isn't what it claims to be. Jack Albertine told me in an interview that ABC companies "are all doubling in size." That is far from the truth. Using a list of member companies supplied by ABC itself at the time of my interview with Albertine, I found that nearly one third of ABC's members didn't qualify for membership on the basis of ABC's own standards. I also found that 10% of ABC's members had actually shrunk in size during the last four years for which Standard & Poor's data was available.
It is true that earlier this year, ABC introduced a review process to expel some member companies whose performance was especially dismal in comparison to ABC's claims about itself. It is also true that no other major business organization employs such a review process. Both these facts were clearly reported in my article.
Messrs. Levitt and Albertine make a central point of my comparison of ABC's 15% growth standard with the much higher growth rate of the INC. 100. In my article, the comparison was used to suggest that ABC's 15% standard is not a preeminent measure of fast growth, as the organization implies in its promotional material. Again, the central point of the article was that, even accepting ABC's standard, many of the lobby's companies don't measure up.
But, more importantly, Levitt and Albertine's argument is specious on its own terms. Of course no company can grow at a rate of 100% or more forever. That level of explosive growth occurs only episodically in the life of a company. But some companies have grown that fast for a few years -- including some ABC members. And it is important to nurture that sort of growth because of the economic benefits produced by companies in that phase of their development, with job creation the most obvious and, perhaps, most important benefit.
After a time, as many ABC members are finding out, growth slows, and a company must learn to adjust to flattening revenues. That adjustment is not always easy or even possible -- thus the uneven recent performance of ABC's membership. The point is, ABC does not advertise itself as "A Coalition of Mature, Medium-Size Corporations Adjusting to Flattening Revenues." To the contrary, the organization's motto is "A Coalition of Growth Companies." It was ABC that chose fast growth as the linchpin of its Washington identity.