The best leaders of 2006

By BusinessWeek

The best leaders of the year showed us how to build great companies while treating employees well.

They also demonstrated how to improve dysfunctional corporate cultures, reinvigorate tired brands and develop strategic plans.

Here is a look at some of the most memorable management moves of the year, as well as a link to a review of executive moves that didn't pan out.

Best start: James McNerney at Boeing

Two chief executives in two years left Boeing (BA, news, msgs) under dark clouds of scandal. Then in July 2005 came W. James McNerney, a former 3M (MMM, news, msgs)boss who was once a contender to replace Jack Welch at General Electric (GE, news, msgs).

McNerney is known as an astute manager, a strategic thinker and a self-effacing leader, which turns out to be just what Boeing needed.

On the defense side of the business, McNerney, 57, has helped clean up a management culture tarnished by ethical improprieties and injected some urgency into a division that struggled to keep key Pentagon contracts. Boeing won a bid, which could be worth as much as $15 billion, to supply the Air Force with modified Vietnam War-era Chinook helicopters.

Note that McNerney didn't try to sell the military the most complicated and expensive helicopter Boeing could devise. When it came to dealing with the commercial-airplane division, McNerney wisely backed the project under way: the fuel-sipping carbon-fiber 787 Dreamliner. He says the first planes, due in 2008, will be on time and on budget.

Best second act: Mickey Drexler at J. Crew

In 2002, Millard "Mickey" Drexler left The Gap (GPS, news, msgs) in near disgrace. He had built up the company over two decades, then lost his touch, and the last three years of his tenure weren't a lot of fun for anyone.

But it wasn't long before the man known as the "Merchant Prince" got another chance: He won the top job at rival J. Crew Group (JCG, news, msgs), which had its own problems, chief among them the impression that its clothes were dated, and not in a knowingly retro way.

Not anymore. In June, Drexler took the company public. In the first day of trading, J. Crew shares rose 28%, making it one of the strongest initial public offerings of the year.

That performance reflected a renewed confidence in Drexler, 62, who has revived the classic J. Crew T-shirts, sweaters and blazers, and added higher-end items, including $1,000 cashmere jackets.

Most recently, J. Crew reported results that were even better than expected. The company's stock has continued to rise, and as of Dec. 5 was close to 40, double the IPO price.

Now Drexler is working to expand his latest store concepts: Crewcuts, which sells J. Crew styles whittled down for kids, and Madewell, women's clothes with, as the company says, "a few vintage details and a modern twist."

The Gap, meanwhile, continues to struggle.

Best juggernaut: Eric Schmidt at Google

Can life get any better for Google? Buoyed by better-than-expected third-quarter earnings, which increased 92% on $2.7 billion in revenue from its search ads, the stock briefly topped a head-spinning $500 a share in late November. Even after a measure of calm returned, the search giant's market cap stands at more than $147 billion, equal to, oh, almost nine times that of General Motors (GM, news, msgs).

Credit Google's triumvirate leadership of founders Sergey Brin and Larry Page and CEO Eric Schmidt, who have managed to beat back rivals from Yahoo (YHOO, news, msgs) to Microsoft. So far, investors have been strangely trusting that Google's far-ranging initiatives will somehow all fit together.

Google's outsize ambitions did become much clearer in October, when it bought the runaway hit video site YouTube for $1.65 billion. Co-founded in February 2005 by Chad Hurley, Steve Chen and Jawed Karim –- friends from the online payment service PayPal -- YouTube has become the 14^th-most-popular Web site. It now attracts 81 million monthly visitors to its collection of wacky amateur videos, as well as unauthorized clips from TV programs such as "The Daily Show with Jon Stewart" and "The Simpsons."

Equity stakes and revenue-sharing deals offered to music and television companies quieted complaints about such piracy, but Google has nevertheless set aside several hundred million dollars to fight potential lawsuits.

Best answer to Google: Robin Li at Baidu.com

Bill Gates and Steve Ballmer might want to have a sit-down with Chinese entrepreneur Robin Li. The founder and CEO of Chinese search engine Baidu.com (BIDU, news, msgs) has achieved something that Microsoft's (MSFT, news, msgs) top brass have yet to manage: beating Google (GOOG, news, msgs). (Microsoft owns and publishes MSN Money.)

By far China's No.1 search engine, Baidu has a 62% market share, more than double Google's. And Baidu widened its lead over the Americans in 2006 despite Google's efforts to boost its China operation.

Li, 38, has had his problems, including lawsuits alleging Baidu's involvement in click fraud. But Baidu denies wrongdoing. Its Nasdaq-listed stock is up more than 80% this year.

In contrast to China's typically brash Internet entrepreneurs, Li comes across as soft-spoken. He earned a master's degree in computer science from the State University of New York at Buffalo and in the 1990s worked for more than two years at search engine Infoseek before returning to China to found Baidu.

He quickly learned to play by China's rules and has won support from the government -- in contrast to Google, which resisted following Beijing censorship rules.

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