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Sustainability & The Ultimate Intangible

This article is the first of a 6-part series examining how the drivers of value creation are the same as sustainability drivers. We will outline these drivers in the next 6 posts and show how recent ESG efforts to define business sustainability fall very short.

Value Creators & Customers 

Customer satisfaction in any business is the ultimate financial intangible. And it must be earned every day. While brands and advertising help evoke emotions for customers that serve to reinforce the perceived value they receive for their interaction, such expectations must be met or exceeded repeatedly. Strong customer relationships take forever to cultivate, but can be destroyed in a single instant. As Warren Buffett has said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

In studying the most pronounced value creators of all time, I’ve found that almost all have a myopic focus on delighting and surprising the customer. What Jeff Bezos has popularly espoused in today’s society is nearly a direct copy of Sam Walton’s approach to consistently lower prices for his customers at Wal-Mart to allow them to live more affordable lifestyles. Even today, after Amazon’s incredible covid-19 momentum, the collective Walton family net worth still surpasses that of Jeff Bezos’s (though not including his former wife’s stake).

Although Sam Walton’s success propelled his family’s net worth to the top of the global league tables, his motivation was never share-price appreciation, but in serving the customer. As he wrote in Made in America, “What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates.” Strong equity returns are an outcome of an excellent relationship between associates and customers, not a goal in and of itself like so many managers think today.

This article is not intended to compare and contrast the wealthiest families. But in looking at the league tables on wealth creators, a surprising majority of them have focused on placing the customer first.

Indeed, the father of modern economics, moral philosopher Adam Smith, suggested the primary reason of a firm’s existence was to serve a customer. The customer is the most important stakeholder in most businesses.

Writing in An Inquiry Into the Nature and Causes of the Wealth of Nations, Smith espoused, “The pretence that corporations are necessary for the better government of the trade is without any foundation. The real and effectual discipline which is exercised over a workman is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.”

The Net Promotor Score

There are numerous ways to measure customer satisfaction, and how survey questions are asked certainly influences the responses that are given. Perhaps the most standardized measurement of customer satisfaction is the Net Promotor Score (NPS), as it’s just a simple question: “Would you recommend us to a friend?”

Respondents all answer on a scale of 1-10, with only 9-10 being counted as a positive number. 7-8 responses receive a 0 score while 6 and under receive a -1 score. The typical NPS of a business in the world is roughly zero. In the S&P 500, the average score is 8.2, meaning that customers are slightly more enthusiastic for these firms than detractors.

The Net Promotor Score as a driver of company returns began to be popularized in the early 2000s, with a notable HBR study by Frederick Reichheld which showed, with a handful of companies in specific sectors, how higher NPS figures correlated to better company performance.

But until my colleague Kveta compiled NPS scores for the entire market index, we’ve never seen any studies which correlated customer satisfaction to company performance on a larger and more statistically significant scale.

Until now.

NPS = Growth = Sustainability

We have used various sources of NPS scores for nearly the entire market index to understand how customer satisfaction relates to company growth and stock performance. To be sure, the NPS is quite volatile due to the sensitivity of scores between 6-8 (out of 10). Very mild changes in customer satisfaction can yield very different NPS results.

Furthermore, different parts of the customer journey carry implicitly different levels of customer satisfaction given the weight of that recent experience. For example, website NPS measurements are often very different than in-person experiences, as sometimes web trouble-shooting is quite a bit easier than in-person problem solving. And sometimes vice-versa.

In order to overcome this volatility, Kveta and I took average NPS scores for each company when we were able to obtain multiple different scores. To help improve the quality of the data, we’re opening up this dataset to any readers to help us challenge the integrity of the data. If the data and analysis changes subsequent to the publishing of this article, we’ll update the data as an appendix to this page. Click here to download the data inputs.

And although NPS scores are volatile, and we don’t have a time series for all companies in the S&P 500, surely any effects customer satisfaction will have on a stock price will only be clear over the long-term. Over the short-term, changes in the direction of customer satisfaction don’t always correlate to each other. In fact, many times a deterioration in the quality of a service or a product reflects positively in the profitability of the company, and since most investors ignore customer satisfaction measurements, these profit boosts will often be met with market enthusiasm.

We’ve found that over the last 15 years, since 2004, the correlation of stock price performance to the company’s NPS scores has been 24.1%. Since 2014, the correlation of the NPS score to stock price performance has had a 26.1% correlation. Seen in quintiles, the data is as follows.

Exhibit 1: Stock CAGR by NPS Quintile

As exhibit 1 shows, there is a clear correlation between stock price performance and higher NPS scores. And recall, this group, the S&P 500, is already above-average in customer satisfaction.

Exhibit 2: S&P 500 NPS Quintile Data

NPS Range
Average NPS
# Companies
Top 20%
2nd 20%
3rd 20%
4th 20%
Bottom 20%


One long-term problem about looking at index performance as an overall proxy for equity performance is an inherent survivorship bias. Indices systematically kick-out declining firms before they reach obscurity. So it would also make sense that the firms in the S&P 500 have systematically higher NPS scores and levels of customer satisfaction. We believe as Walmart shows, a myopic focus on supporting the customer builds very long-lasting relationships between the company and the customer that not even Amazon has been able to meaningfully displace.

What better way to describe sustainability than one of long-term strong relationships? It’s hard to think of a better way to describe sustainability. Indeed, visionary value creator Sir Martin Sorrell, of S4 Capital, one of our portfolio companies, recently defined sustainability as that of simply having a long-term approach.

Exhibit 3: S4’s Definition of Sustainability

And as we’ll see in a later segment in this series on Sustainability, as equity holding periods have shrunk from the indefinite holding time horizons of family companies, down to multiple years in the mid 20th century stock market, and more recently even further down to months and possibly hours, firms’ value propositions have become less and less sustainable as equity holders and management compensation plans excessively focus on maximizing profit only in the very short-term.

This short-term approach, with its near singular focus on beating quarterly profit guidance, is often at the expense of the long-term relationships those companies form. While long-term relationships form the essence of a sustainable ecosystem, perhaps there are none more important than that of the original relationship: between the artisan and his customer.

A position that grew to be one of our largest this year, Peloton, has said that one of the most important goals the company has is to be the first company to reach an NPS of 100, which they believe will allow them to eventually reach 100 million subscribers to its fitness platform. While we love the ambition, perhaps neither will actually be achievable.

But we were very surprised to learn that as the company has dramatically increased its ecosystem, from 1.4 million members to 3.1 million in the last twelve months, the company has actually been able to improve the NPS from 91 to 94. This defies conventional logic. As most other companies reduce the prices of their products and services in order to appeal to a wider base, typically the quality of that experience has also been diluted. We find it highly encouraging for the growth of Peloton’s subscriber base that it continues to focus on making its experience truly world class.

Disconfirming Evidence

While we have identified a clear link between customer satisfaction and company performance, there are lot of exceptions to this rule. Some companies have the great fortune of occupying an irreplaceable segment of the economy. Irreplaceable networks and products give these firms clear advantages that sometimes allow them to ignore customer complaints and continue to inflate prices higher.

Trasndigm is a great example of this, one of the strongest performers of the second to last quintile. The company takes a Valeant Pharmaceuticals approach to the aviation industry. It acquires mission-critical and FAA-certified aerospace parts makers. The serial acquirer then typically aggressively raises prices every year while gutting R&D spending at these companies. It has worked well for Transdigm shareholders because the longevity of these aviation platforms are multi-decade.

But as the company has found, not only do customers not appreciate these tactics, with an NPS of -2, but numerous senators have even asked for the Department of Defense to investigate its pricing tactics. Perhaps ignoring customer complaints has worked for shareholders, but the company’s sustainability is increasingly fragile.

In Conclusion

While there are many other factors that drive both value creation and sustainability, the customer relationship is the most important. Doing things that surprise and delight the customer is typically a decision that leads to a lower near-term profit result. With executive compensation plans often focused on relative shareholder returns over a short time horizon, as well as annual profit targets, most managers in today’s society often have to decide whether or not they get their bonuses, or further invest in strengthening their relationships with their customers.

While customer satisfaction is surely not the only thing that drives company performance, we believe we have shown comprehensive data that proves in the world’s largest companies, that focusing on delighting customers does indeed translate to better share price performance for investors.

Owners that maintain a long-term focus on the sustainability of the business will be more richly rewarded than those focused on hitting profit targets in the near-term. And their businesses focused on improving the customers’ perception of their added value will create true win-wins. Service leadership and providing value will always work over the long-term. In an investment world filled with fads and trends, this is one core pillar of value creation and sustainability that will surely never go out of style.

To read the next article (part 2) in this series, Sustainability & a Kick Ass Culture, click here.


This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

Past performance is no guarantee of future results.

This Post Has 3 Comments

  1. Thanks for a good article. Where are you getting NPS numbers from? Also, are you still a value investor or are you moving beyond that or redefining value?

    1. Thanks for the feedback, Jan Erik. In the link above – you can download the data and each contribution is hyperlinked. We strapped together sources, customer guru was a large source as was And actually, yes, we’re very much considering ourselves a value investor – but it’s not just cheap for cheap’s sake, we’re looking for under-appreciated companies, and most don’t look at NPS scores. Can find some good diamonds in the value “rough” so to speak.

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