What is the average length of time a company stays in the Fortune 500? How has that changed over time?
Hello, thanks for your question about the average length of time a company stays in the Fortune 500. This question is more complicated than it might first appear, due to a number of factors: companies may enter and exit the Fortune 500 list multiple times, sometimes under different names; the methodology used to compile the list changed markedly in 1994, when service companies were first included; and service companies accounted for a higher number of entries and exits than companies in other sectors. While these factors can make it difficult to make meaningful comparisons without overgeneralizing, the turnover rate within the Fortune 500 list can still give us useful insights into the economical and technological changes that have taken place since its inception.
Below I have outlined the key statistics available on this topic, as well as some of the issues affecting the changes in the Fortune 500 list over time.
TURNOVER RATE ON THE FORTUNE 500 LIST
The Ewing Marion Koffman Foundation released a report on this topic in June 2012. Examining the rate of change in the Fortune 500 list since its inception in 1955, they found that an average of 31.44 companies on the list change every year. Their historical research gives more depth to this average.
The report noted that turnover for companies in the Fortune 500 was moderate in the 1950s, fluctuating around the overall average of 31.44. The rate of change was lower and steadier in the 1960s and 70s, fluctuating around 20-25 companies per year. Beginning in the 1980s, the rate at which companies joined and left the Fortune 500 rose to heights not seen before, fluctuating around a change of 35-40 companies every year. The writers of the report attribute this phenomenon to the widespread restructuring of companies to improve efficiency, a response to the high levels of inflation and strong competition of that era. In the 1990s, the turnover rate rose even higher, with the number spiking to 45 and 50 companies leaving the list every year around the end of the 20th century. The report cautions that these numbers are partially a result of a change in the methods used to compile the Fortune 500 list, but are also due to a strong increase in mergers and acquisitions.
Despite this overall trend in increasing turnover, the report notes that after the year 2000, the rate of companies joining and leaving the Fortune 500 resembled the levels observed in the 1950s, fluctuating closer to the average of 31.44 once more. The overall trend in the 2000s has been a decrease in the turnover rate, with a spike around the 2008 recession. In examining the change in companies on the list from 1999 to 2009, other writers have found that roughly 50% of the companies on the list in 1999 were still on that list a decade later.
This report raises an important point to keep in mind: as noted above, companies may enter and exit the Fortune 500 list multiple times, and they may enter under different names. On page thirteen of their report, they note that 1,332 companies have entered and exited the list once, while 248 have come and gone twice, 49 have come and gone three times, and a decreasing number of companies have entered and exited an increasing number of times.
REASONS FOR CHANGE IN TURNOVER RATE
Changes in technology certainly play an important role in determining the success of companies. An article on this topic in the MIT Technology Review noted that companies are bumped off the S&P 500 list more quickly now than in the past: in 1958, companies remained on that list for an average of 61 years, while today the average is only 18 years. The author notes that Kodak, The New York Times, Palm, and Compaq, were all bumped off this list mainly due to technological innovations.
In a 2015 survey distributed to all Fortune 500 CEOs, the rapid pace of changing technology was ranked one of the greatest challenges facing their company by 72% of respondents. Cybersecurity, increased regulation, and a shortage of skilled labor were the next most important challenges, according to this survey. 94% of CEOs projected that their company would change more in the next five years than it had in the past five years.
The Koffman Foundation report notes that other factors affect this rise in turnover rate, including economic factors and methodological changes in the way the Fortune 500 list is compiled. In terms of methodology, the list began to include service companies in 1994, when previously it was limited to industrial, energy, and manufacturing firms; this caused a drastic change in the companies on the list, with approximately half being bumped off. Prior to 1993, an average of twenty-nine companies were bumped from the list every year; after 1994, the average was thirty-nine companies changing on the list every year. Their research shows that service companies account for a higher number of entries and exits on the list than other industries (see page 12).
It is also important to note that a company may fall off the Fortune 500 list for a variety of reasons: they may go out of business, they may be acquired by another company, or their performance may simply not be at a high enough level relative to other companies on the list.
The average longevity of companies will also affect the length of time they remain on the Fortune 500 list. This article in Forbes explains that the length of time that companies can expect to "milk the cash cow" of a successful product is shorter than it was in the past: while in the 1950s, companies on the S&P 500 could expect to thrive for an average of sixty years, in 2001 that average was closer to fifteen years. The author notes that companies such as Apple who focus on technological innovation rather than simply increasing sales are more successful in the long run.
In summary, while recent analysis has shown that approximately 50% of companies on the Fortune 500 list can expect to remain on that list for a decade, these figures cannot easily be compared to previous statistics without taking many factors into account. An examination of historical changes in the Fortune 500 list must factor in the impact of methodological changes in the compilation of the list. A decreased average longevity for large companies, as well as economic factors and technological changes will all impact their chance of remaining on the Fortune 500 list.
Thanks for asking Wonder, and please let us know if we can help with anything else.