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The Best CEOs in America The definitive ranking from the audience that’s the most important and the most knowledgeable: the financial community. Premiere Issue , Page 57
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By the editors of Corporate Leader- The readers of our two sister publications, Trader Monthly and Dealmaker, can be found in all corners of the investment world. They are traders and bankers, portfolio advisers and M&A experts, hedge-fund managers and corporate-finance specialists. They represent nearly every age group and job title, from the 22-year-old banking analyst to the hedge-fund quant with a Ph.D. to the battle-scarred founder and president of a private-equity firm. One thing this group of finance-industry professionals share, though, is their emphasis on quantifiable results. For a CEO to impress them, it’s not enough to be charismatic or visionary or tough (though these qualities assuredly matter). Nor is it enough only to meet the already demanding expectations that accompany the top job at a Fortune 500 firm. You must overperform in measurable ways to continuously generate high earnings and value for shareholders — while at the same time making the difficult long-term decisions that position a company to perform equally well in the future. That makes this group a compelling audience to ask: Who are the best CEOs of America’s biggest companies? In other words, which leaders do investors trust the most to continue exceeding the ambitious results expected of them? Having divided 100 large-cap firms into 10 economic sectors, we sent out 80,000 surveys, analyzed the findings and then interviewed dozens of the respondents to find out why they voted for certain executives. Unsurprisingly, the most common reason given was, simply, “performance.” Respondents cited additional reasons specific to each CEO: Apple’s Steve Jobs was commended mostly for his innovation; James Sinegal, of Costco, for his unique, employee-friendly business strategy; and Alan G. Lafley, of Procter & Gamble, for having invigorated the formerly lifeless consumer-goods giant. This survey, which we plan to publish annually, should be seen as a snapshot whose field of view will change from year to year. New corporate stars will emerge, stalwarts will step down and perceptions — and the business climate — will change. Such fluidity gives the list an added dynamic. But to rise near the top of this list even once indicates a record of excellence that inspires confidence in those who have substantial money riding on the performance of the companies these men lead. So enjoy a candid look at the stars of the corporate world, as determined by those with a front-row seat — and an unblinking critical eye. CEOSteve Jobs
Sector
Company
Age: 52
In 2004, Steve Jobs was diagnosed with pancreatic cancer, and doctors gave him less than six months to live. A year later, Jobs, who backpacked through India after dropping out of college and often speaks with philosophical overtones, gave the commencement speech at Stanford University. “Your time is limited, so don’t waste it living someone else’s life,” he said. “Don’t let the noise of others’ opinions drown out your own inner voice.” Judging by his career, though, it seems Jobs has been living this advice since well before this brush with death (doctors later determined that his was a rare, curable kind of pancreatic cancer, and he made a full recovery after the tumor was removed). His early career — founding Apple with Steve Wozniak in 1976; being forced out of his own company in 1985; founding NeXT and, more successfully, Pixar before returning triumphantly to a struggling Apple — is the stuff of entrepreneurial lore. The last decade, however, has seen Jobs emerge as an iconic CEO at one of the world’s iconic firms. The cultural impact of the company he resurrected and has since led is impossible to overestimate. The revolutionary iPod has maintained its ubiquitous dominance — as both digital music player and fashion statement — since it was introduced in 2001. And the company’s Macs and laptops are gradually eroding the PC’s longstanding control on the consumer market. Thus his victory among hedge-fund and private-equity fund managers, professional traders and investment bankers in our inaugural best-CEO survey is not a complete surprise. But the size of his win was: Jobs outpaced the second-ranked CEO, Lloyd Blankfein, by a margin larger than the difference between Blankfein and the fourteenth-ranked CEO overall, Procter & Gamble’s A.G. Lafley. This year has been particularly noteworthy for Jobs and Apple. The much-hyped iPhone moved a million units in just 74 days after its release, according to the company. Apple’s stock, meanwhile, has more than doubled in price since the end of last year. Our survey respondents’ comments suggest that their quantifiable admiration for Jobs transcends his financial performance. “Jobs is a true visionary,” says Robert Esecson, a senior managing director at Strategic Financial Group, an investment-banking firm. “He consistently thinks outside the box and fosters creativity within the entire company.”
Executive Fact:
How They Finished:
CEOJames Sinegal
Sector
Company
Age: 71
James Sinegal’s employment contract includes a profoundly unusual clause: one dictating that he can be terminated for under-performance. Sure, CEOs should expect a lot from themselves, but few would willingly submit to such a harsh punishment. Then again, Sinegal’s management style has always flown in the face of convention. Of the 100 CEOs in this survey, few generated such a warm, seemingly personal response from the professional investment community. “He’s done a tremendous job defeating formidable competition while maintaining high quality, service, customer loyalty and employee loyalty,” says Leo Isaak, a managing partner and portfolio manager at Spartan Capital. “He puts the company ahead of himself.” Many we surveyed praised Sinegal’s famously harmonious employee-relations style. Costco offers its workers the highest wages and benefits in the warehouse-sales space and provides health-care coverage to more than 80 percent of them. Such an approach, Sinegal argues, translates into higher productivity and contributes to Costco’s remarkably low employee turnover. Costco has no PR department, relying instead on word of mouth perpetuated by its loyal employees — or “ambassadors,” as Sinegal dubs them. The numbers back up his approach: As of late October, Costco’s stock was up about 25 percent for the year, roughly 20 percent more than the S&P 500. Sinegal cofounded the company in 1983, and has since grown it from one warehouse in Seattle to more than 450 worldwide, with a market cap of roughly $28 billion. The profits are in the details: Sinegal has said that he spends about 200 days a year visiting and inspecting Costco’s warehouses in person. When in the office, he’s been known to answer his own phone. The Street always appreciates successful contrarians, and Sinegal’s efforts to infuse luxury products into the warehouse mix wasn’t lost on our survey participants. “I love Costco’s innovation,” says Teresa Appleton, who runs Trade With Logic, an online trading company. “Sinegal doesn’t panic and doesn’t make drastic changes to accommodate short-term earnings requirements. He knows he’s in a cyclical industry, and he just worries about doing the right thing.”
How They Finished:
CEOAlan G. Lafley
Sector
Company
Age: 60
Education: A.B. in history from Hamilton College; MBA from Harvard Business School
A.G. Lafley wasn’t the most exciting choice to take over Procter & Gamble seven years ago. After an earnings shortfall had sent the company’s stock price tumbling — and Lafley’s predecessor packing — some investors were hoping for a fresh outsider with a big name to stabilize the consumer-goods giant. Lafley was a P&G lifer. But his performance since he became CEO in June 2000 is now the subject of case studies and the source of widespread admiration. “Unlike Procter & Gamble’s products, Lafley isn’t a household brand name,” says one of our survey participants, a global investment specialist at JPMorgan Private Bank. “But he does have the old-school management skills that turned a dormant firm into a world powerhouse.” Lafley began the turnaround with a renewed focus on selling P&G’s existing brand-name products, rather than extending into new ones. Similarly, he has said he would return P&G to a consumer “pull” approach, using innovation to give customers what they want, rather than trying to “push” new technology and products onto them. Lafley also forged relationships with outside inventors and designers, eschewing the commonly held belief that all P&G products must come from inside the company. He has further built P&G through acquisitions, including that of Gillette in 2005 for $57 billion. “[Leadership] boils down to four things,” Lafley says. “[Leaders] have clearly defined values that guide their choices and actions and which they articulate often; they embrace change as inevitable and regularly challenge the status quo; they have the courage to stare reality in the face and act; they have a sincere passion for learning and for developing other leaders.” Challenging the status quo has paid off at P&G. After surging 15 percent in this year’s third quarter, P&G’s stock has doubled since Lafley took charge in June 2000. Its revenues have climbed from $43.4 billion annually five years ago to about $76.5 billion for the year ending June 30. Profits in the same period roughly doubled, from $5 billion to $10.3 billion. That’s an exciting CEO indeed.
Upcoming Challenges:
How They Finished: Consumer Staples
1. Alan G. Lafley P&G 3.985
CEOLloyd Blankfein
Sector
Company
Age: 53 Education: A.B. from Harvard; J.D. from Harvard Law School Previously: President, Goldman Sachs; head of Goldman’s trading divisions Throughout its history, Goldman Sachs has been led by investment bankers — white-shoe types who viewed themselves as guardians of gentlemen capitalism. Enter Lloyd Blankfein, who ascended to the CEO spot in 2006 via the trading desk. In many ways, he had driven the firm’s phenomenal performance over the last half-decade as the head of that desk, then as the CEO-in-waiting. The son of a postal worker who was rejected by Goldman the first time he applied to work there almost three decades ago, Blankfein reflects the shift in the securities world from advising to trading and investing in-house money — a shift that continues with the 53-year-old in the top spot, continuing Goldman’s remarkable earnings run. While much of the market was getting crushed by the subprime-induced credit crunch, Goldman stunned investors with a 79 percent third-quarter-over-quarter net-income spike. As of mid-October, its stock was up more than 260 percent for the previous five years. Our respondents understand this sector particularly well, and Blankfein, considered less formal and egotistical than the typical Wall Street CEO, easily outpaced second-place James Dimon. “He directs the company with razor-sharp precision,” says Dietmar Scherf, the CEO of Cascada Corporation, a hedge fund. “We saw that in the third quarter. He’s kept Goldman moving in the right direction.”
Upcoming Challenges:
Executive Fact:
How They Finished: Financials
1. Lloyd Blankfein Goldman 4.456
CEOEdward Whitacre
Randall Stephenson
Sector
Company
Ed Whitacre
Randall Stephenson
In June, Ed Whitacre stepped down from his role as chairman and CEO of AT&T after more than four decades in telecommunications. He will be remembered primarily as the CEO who made Southwestern Bell, the smallest of the original Baby Bells, into the world’s largest telecommunications firm — one that ultimately subsumed the brand from which it began, AT&T. Recent market cap: $257 billion. He turned AT&T into what it is today mostly through large acquisitions, which give the company an unmatched scale and breadth of services — including landlines, wireless phone, broadband Internet and television — that it can bundle to customers. SBC acquired AT&T Wireless for $47 billion in 2004 and AT&T Corp. for $22 billion in 2005, taking the AT&T name in the process. The company also acquired BellSouth last December for $86 billion. That our respondents voted Whitacre the best CEO in the telecom sector even after he retired is a testament to how highly they think of him and to the confidence they have in his successor, Randall Stephenson, who was also listed on ballots. “Size is hugely important in the telecom field,” says Larry Steinberg, founder of the Steinberg Group, an investment-advisory and e-commerce firm. “AT&T has been good about taking risks while hedging its bets, and has made some smart acquisitions.” Wall Street clearly applauds the acquisition strategy. AT&T’s stock is up about 90 percent for the past two years, compared to about 30 percent for the S&P 500. Those surveyed gave Whitacre credit for everything from resurrecting the original “Ma Bell” (by taking the AT&T name) to the firm’s deal to exclusively service the iPhone. In Stephenson, AT&T has a natural successor. Having already worked with Whitacre for roughly a decade, he was made CFO in 2001 and COO three years later. As CFO, he reportedly decreased the company’s debt by some $30 billion, helping position the firm for the purchases of AT&T and BellSouth. Stephenson has some challenges to live up to, with cable companies now offering telephone and Internet services, and AT&T getting into Internet-protocol television through a nascent service called U-verse. It also remains to be seen whether Stephenson will continue to seek large acquisitions or focus more on organic growth. So far, though, our respondents seem to have faith that he’ll continue the legacy.
Executive Fact:
How They Finished: Telecom
1. Edward Whitacre AT&T 3.642
We asked our survey respondents to list newly appointed or up-and-coming CEOs worth keeping an eye on. Behold the Fast-Rising Five.
1. Richard Davis U.S. Bancorp
2. Craig S. Donohue Chicago Mercantile Exchange Group
3. Anne Mulcahy Xerox
4. James Keyes Blockbuster
5. Mark Zuckerberg Facebook
CEORex Tillerson
Sector
Company
Age: 55
For Rex Tillerson and ExxonMobil, the bottom line is, well, the bottom line. Tillerson, who became CEO in January 2006, is considered a more amiable extension of his well-known predecessor, Lee Raymond. Our respondents cited both men’s singular obsession with profits, along with their ability to get them. “Tillerson sticks to the plan,” says Stephen Miles, a foreign-exchange trader and president of InterContinental Bulk Systems, an investment firm. “He unwaveringly maintains Exxon’s long-term formula.” ExxonMobil is the most profitable company in the world, in any sector. In the year ending June 30, it generated about $40 billion in net income. Its stock price has roughly doubled the S&P 500 for the past five years, and jumped 10 percent in the third quarter alone. Little wonder that the traders in our survey ranked him far higher than the deal community. Tillerson has maintained the company’s laser-like focus on streamlining operations and keeping costs down. “We seek to build an environment of shared ownership of results,” he says. Projects contingent on the price of oil are shunned. Since the days of Raymond, Exxon’s strategy has been to invest in projects and new markets that the company expects to be profitable no matter where oil prices go. That hasn’t changed under Tillerson. “Our employees are motivated by a deep sense of the importance of what they do, and the critical role they play in helping to meet the world’s demand for energy,” he says. Also like his predecessor, Tillerson has mostly avoided the calls to invest in alternative fuel sources, as rival energy companies such as BP have been doing for several years now. Their profitability is questionable — and, in any event, oil and gas will remain the dominant global energy source for decades. Tillerson therefore focuses on reducing pollution from oil and gas use, rather than investing in other sources where Exxon has less experience and expertise.
Upcoming Challenges:
Executive Fact:
How They Finished: Energy
1. Rex Tillerson ExxonMobil 3.988
Gone from the suite, but not forgotten: We asked our respondents to list CEOs of yore that they admire. Behold the Fabulous Five
1. JACK WELCH
2. LEE IACOCCA
3. Sandy Weill
4. Gordon Moore
5. Lou Gerstner
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2 COMMENTS
Posted by Steve Ford - Feb 15 2008 @ 4:50 PM Re: The Best CEOs in America Excellent lineup. Bravo. Posted by generuckle - Dec 2 2007 @ 12:35 PM Re: The Best CEOs in America Good job! Since I do Leadership Development and we need to keep our eye on the ball in terms of the apex of corporate leadership as well as other key influencer positions, this is an insightful article based on constituency and then profiles.
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