Blog

27
Jan

Another Year of Outstanding Global Lamp Index® Returns

During 2012 the Global LAMP Index® continued to build its multi-year performance advantage over  leading global equity indices as well as the S&P 500. A chart showing compounded returns since 1996 – the year I started work on the Index – is displayed on the front page of this website. Tables detailing index returns on a year-to-year and on a compounded basis are included at the end of this blog piece.

The Global LAMP Index® was created as a learning lab for my book, Profit For Life (Cambridge: Society for Organizational Learning. 2006). It is comprised of 60 companies with an industry/sector diversification that broadly matches the MSCI Global, the FTSE World and the S&P 500 indices. The 60 companies in the Index were selected for their global leadership in living asset stewardship, with each being best of breed within an important industry/sector.

Northfield Information Services (www.northinfo.com) has run two independent analyses of the Global LAMP Index® covering the years 1996 through 2007 during which time the Index’s composition was unchanged. Between 2006 and 2012 there have been four changes in Index composition: two due to mergers and two due to initial selection errors on my part. Since publication of Profit For Life, that represents a turnover rate of roughly 1% per year, which is exceptionally low by index standards.

Affirming the emerging corporate renaissance

Given the low turnover rate of the Global LAMP Index® its exceptional returns are highly significant. They affirm my thesis that a global corporate renaissance is under way in progressive companies. Leaders of this movement model themselves on complex, adaptive living systems – a radical departure from the conventional norm of mechanistic, rule-bound corporate thinking. We see this in the following ways:

  • The new leaders put a higher value on living assets (people and Nature) than on non-living capital assets, understanding that living assets are the source of capital assets;
  • They mimic life in the ways they organize and operate so they can work in closer harmony with the larger living systems that support them (Nature, society);
  • Their operating leverage resides in their life affirming, servant leadership cultures, which inspire employees to think, learn, innovate and serve.

Much is written about the emerging corporate renaissance – as well as the self-destructive impulses of the dying industrial capitalist model of corporate enterprise – elsewhere in this blog. For an illustrated summary of the renaissance, see the post on my September 2011 Copenhagen talk.

Living asset stewardship (LAS) is a term I created to encompass the changes taking place in  companies leading the renaissance. The changes themselves, which have been occurring for the better part of a half-century, reflect emerging trends in scientific and philosophical thought around holism, ecology, neuroscience, chaos theory and system dynamics, which collectively frame LAS.

The insights emerging from these thought trends compel us to pay more attention to the non-linear dynamics of relationships between humans, and between us and Nature, and correspondingly less attention to linear paths to the bottom line. As reflected in the following tables of Global LAMP Index  shareholder returns, strong stakeholder relationships created by well-executed LAS are highly correlated with bottom line results.

Looking at the data

The following table shows the year-to-year returns of the Global LAMP Index® computed on an equal weighted basis using Northfield data through 2007 and Bloomberg data thereafter. Northfield also computed returns on a market-weighted basis through 2007, which can be furnished on request. In all tests LAMP returns were significantly better than peer indices.

Table 1.
TOTAL INVESTMENT RETURNS BY CALENDAR YEAR
table1Global LAMP Index is a learning lab, not an investment product. While its returns have been exceptional there can be no assurance they will continue into the future.

The power of the emerging corporate renaissance becomes even more obvious when year-to-year LAMP returns are calculated on a compounding basis. As shown on Table 2 compounding rewards consistent above average performance – an advantage that grows over time. For example, during the ten-year period ending in 2012 LAMP returns were generally 50% to 100% better than peer indices. For the 17-year period since 1996 they were 3.5 to 4.0 times better than peer indices.

Table 2.
LOOKING AT RETURNS ON A COMPOUNDED BASIS
table2

COMPOUNDED INVESTMENT RETURNS
table3

The Global LAMP Index is a learning lab, not an investment product. While its returns have been exceptional there can be no assurance they will continue into the future.

LAMP excess returns will diminish over time

Since the Global LAMP Index® was initiated many companies that earlier got low scores on their LAS cultures have greatly improved: an indication that success breeds imitation. Wal-Mart fits into this category.

As well new companies have emerged that push the envelope on LAS culture and continually redefine best practices. Google is a fine example here.

Neither Wal-Mart nor Google are in the Global LAMP Index® today because they either lacked a verifiable history of LAS when the Index was created (Google) or because their earlier low scores kept them out (Wal-Mart). Because both companies are important components of peer indices – and because their LAS practices are spreading – the performance advantage of the Global LAMP Index® will diminish over time. We do not fear this. Rather we encourage it because LAS is the path to more sustainable corporate practices.

Finally, it s fair to say that some LAMP companies, which were LAS leaders in 1996, are no longer front-runners and have lost some of their innovative edge to others with better LAS practices. Although these irregular few depress Index returns, I have kept them in the core LAMP 60 because I’m curious to see how they manage their ways forward. The Global LAMP Index is after all a learning lab; and I never want to discount the capacity of LAMP companies to reinvent themselves as they learn and adapt to the living world in which they exist.











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