The FORTUNE Global 500

(FORTUNE Magazine) – It got a lot harder to join the ranks of the world's largest corporations this year. The cutoff for the list--the revenue needed to be ranked No. 500--rose by a record 15%, to $12.4 billion. That's more than the GDP of Jordan or Jamaica. But being big can be a mixed blessing. For Big Oil, it meant big profits last year. For other companies, it meant big headaches.

Just ask Wal-Mart, the No. 1 company for the fourth year in a row, which has become America's favorite punching bag. Or General Motors (No. 5) and Ford (No. 8), whose outsized pension liabilities led to their bonds being downgraded to junk status this spring. Or insurance giant American International Group (No. 19), whose CEO was forced out over allegations of accounting fraud.

But for the FORTUNE Global 500 as a whole, 2004 was an excellent year. Revenues rose 13%, and profits were up 27%. "Last year was a very good year for earnings," particularly in Europe and Asia, says Ajay Kapur, global equities strategist at Citigroup Smith Barney in New York City.

It was an especially good year for oil companies, with prices over $50 a barrel for much of 2004. No. 2 BP saw its revenues rise 23%, to $285.1 billion, faster than Wal-Mart's, which were up a relatively meager 10%. That allowed the British oil company to come within $2.9 billion of usurping Wal-Mart as the world's biggest company. "It's kind of amazing, isn't it?" says CEO John Browne, flipping through the company's annual report at his office in London. (In 1995, before it acquired Amoco and Arco, BP ranked No. 31, with $51 billion in revenues.)

Not even BP, whose profits jumped 50% last year, was able to outshine Exxon Mobil (No. 3) as the world's most profitable company. Exxon posted $25.3 billion in profits, a record for a Global 500 company. Other oil majors also scored big. Despite its widely publicized reserves troubles, Royal Dutch/ Shell (No. 4) saw its revenues grow 33% and its profits soar 46%. Revenues were up 29% at both Total (No. 10) and Chevron (No. 11).

Several European and Asian automakers also performed well. DaimlerChrysler (No. 6) and Toyota Motor (No. 7) moved ahead of Ford, pushing the American automaker down two notches. DaimlerChrysler's profits increased sixfold, to $3.1 billion, and Toyota earned $10.9 billion--more than GM, Ford, and DaimlerChrysler combined. Nissan (No. 29) also had a banner year, earning $4.8 billion and propelling its CEO, Carlos Ghosn, to take on the added responsibility of running France's Renault (No. 80), which owns 45% of the Japanese carmaker. Ghosn is the first person to head two Global 500 companies at once. "You really need a clear strategy, strong empowerment for people on both sides, and rigorous organization," says Ghosn.

Which raises the question, How can anyone manage one, let alone two, Global 500 companies? "These organizations are as big as small countries," says David Garvin, a Harvard Business School professor who specializes in studying the processes of corporate giants. "They need an enormous amount of care and tending."

The most successful giants--BP, General Electric, Wal-Mart--have CEOs who can move smoothly on three levels, he says. They can articulate a vision, develop systems and policies to implement that vision, and operate on the ground to steer those systems. BP's Browne continually reviews whether BP is investing in projects that will make a big difference to the bottom line, and he drives that focus down through a management system based on detailed performance contracts that require managers to be accountable for specific results. "No two people can be accountable for one thing," says Browne. Like most big companies, however, BP is only very good, he says, at one business: oil and gas exploration and production. That's why it's spinning off its chemicals division. "A million flowers blooming," he says, "is very difficult to manage."

GE, which ranks ninth in revenue and fourth in profits, stands out as an exception to that rule--it excels at many businesses. But GE is extraordinarily good at one thing: creating and sustaining management processes. CEO Jeff Immelt is speeding up innovation by linking bonuses to new ideas and to customer satisfaction. Jack Welch before him developed a system to track, measure, and manage GE's human capital. Welch's predecessor, Reginald Jones, adopted a unique set of financial measurements. Each built upon the other to create a dynamic management culture.

For Wal-Mart, success as a big company has less to do with low prices than with high technology. The company maintains a massive database that enables statisticians at its Bentonville, Ark., headquarters to write software that can discern retailing patterns. By analyzing what sold during tornadoes and big storms over the previous two years, for example, Wal-Mart knew that unexpected items such as board games and handheld can openers would be in demand during last year's hurricane season in Florida. Wal-Mart's technology, says Linda Dillman, the company's chief information officer, "enables us to get a lot of real-time data that we and our suppliers can use. It also gives us a common language. No matter where you go, you see the same terms, the same metrics, and the same tools."

Some companies have a relentless drive to get bigger. Browne of BP maintains there are no limits to growth. "If you've got clarity of purpose, planning, and great people, then I don't think there is," he says. Big can be an advantage: Only huge corporations have the ability to undertake expensive or risky paradigm-shifting strategies. A single oil rig can cost $500 million, the development of a new airplane or a drug much more. "These companies," says Garvin, "can make moves that fundamentally reshape businesses and industries."

That may help explain the eagerness of many Chinese companies to get on the Global 500. The number of Chinese companies on the list increased to 16 this year, up from 15 last year and just three in 1995. So keen was one Chinese company to make the list that it sent a representative from Beijing to FORTUNE's offices in New York to hand-deliver its annual report. Unfortunately the company, which had enough revenue in 2004 to have made the list last year, was too small to qualify. That could change next year if it completes an acquisition--and if the floor doesn't keep rising.



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