Many chief executives are critical to their organizations. But a much smaller number really matter on Wall Street.
In assembling our third annual list of 30 top corporate leaders from around the world, we've sought to identify CEOs who have top-notch reputations in the financial community and who likely would be missed by investors if they unexpectedly left their jobs.
This admittedly is a subjective call, but we've talked to plenty of investors, looked at financial and stock-market performance and assessed intangible factors like leadership and industry stature. We've drawn on the knowledge of our staff, many of whom have contributed to this article.
To qualify, CEOs need to have been on the job for three years, but we tend to prefer those who have at least five years of experience because it takes time to influence a large company and develop a reputation in the investment world.
Many of the CEOs in our pantheon this year founded their companies or have been with them for a decade or more. Founders include Rupert Murdoch of News (NWS, news, msgs), Warren Buffett of Berkshire Hathaway (BRK.A, news, msgs), Jim Sinegal of Costco Wholesale (COST, news, msgs), Fred Smith of FedEx (FDX, news, msgs) and Charlie Ergen of EchoStar Communications (DISH, news, msgs). Many investors mistakenly minimize the beneficial impact of the continuing presence of a founder on an organization, but patient holders have reaped the rewards of having a Buffett, Smith or Sinegal at the helm.
A founder often has intimate business knowledge, commands strong employee loyalty and can resist periodic entreaties from Wall Street for quick fixes to tough problems. Not every founder is an unalloyed plus for investors. Many on Wall Street, for instance, believe that it's time for the 83-year-old Sumner Redstone to step back from Viacom (VIA.B, news, msgs) and CBS Corp. (CBS, news, msgs).
The ultimate CEO who matters is Steve Jobs, a co-founder and guiding force at Apple (AAPL, news, msgs). Jobs' departure probably would result in a greater loss of stock-market value than the loss of any other CEO in the world. Jobs might be worth 20 or so points to Apple shares, roughly $16 billion. No wonder the company last year seemed eager to minimize Jobs' role in Apple's options-backdating problem. Apple continues to out-innovate Microsoft (MSFT, news, msgs), which spends about 10 times as much on research and development. (Microsoft is the publisher of MSN Money.)
Strong financial performance
A common theme among the 30 CEOs is that they have delivered for shareholders. Nearly all of the companies have stocks that have bested the Standard & Poor's 500 index during the CEO's tenure. One notable exception is General Electric (GE, news, msgs), whose share price is little changed under the five years of Jeffrey Immelt's leadership. Immelt deserves inclusion because of GE's strong financial performance during his tenure and his moves to remake GE's portfolio in favor of high-growth businesses. Just think about what the past five years could have been like at GE if its board had selected the imperious Robert Nardelli to succeed Jack Welch in 2001. A former GE division chief, Nardelli was a contender for Welch's job and went to Home Depot (HD, news, msgs) after losing to Immelt.30 CEOs who matter:
| Name | Company | Name | Company |
|---|---|---|---|
Warren Buffett | John Mackey | ||
Kenneth Chenault | Lakshmi Mittal | ||
George David | Allan Moss | ||
Charlie Ergen | Angelo Mozilo | ||
Larry Fink | Rupert Murdoch | ||
Lew Frankfort | Michael O'Leary | ||
Richard Fuld | Franck Riboud | ||
Fred Goodwin | Peter Rose | ||
Jeffrey Immelt | Steven Roth | ||
Satoru Iwata | James Schiro | ||
Steve Jobs | Bob Simpson | ||
Henning Kagermann | Jim Sinegal | ||
Richard Kovacevich | Fred Smith | ||
A.G. Lafley | Ratan Tata | Tata Sons | |
Terry Leahy | Jong-Yong Yun | Samsung Electronics |
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There are plenty of returning names on this year's list, with 21 of the 30 CEOs having made the cut in 2006. Two CEOs, Steve Reinemund of PepsiCo (PEP, news, msgs) and John Browne of BP PLC (BP, news, msgs), departed because of retirement or, in Browne's case, an impending departure.
Others were dropped as a result of business or financial difficulties. Gone from the list is Bob Toll, the co-founder of Toll Bros. (TOL, news, msgs). Toll may be the best CEO in the housing business, but industry profits have collapsed, and the financial outlook for even top builders looks murky. Also off the list is Chip Mason, who built Legg Mason (LM, news, msgs) into an asset-management powerhouse over two decades. Mason, however, may have done one deal too many in 2005 when he bought Citigroup's (C, news, msgs) investment-management arm, a transaction that has proved disappointing so far.
New additions to the list
Notable newcomers on our list include Murdoch, who continues to make intelligent business moves, like buying MySpace.com in 2005, and shrewd financial actions, such as effecting a giant share buyback by swapping News' controlling stake in DirecTV (DTV, news, msgs) for a 16% stake in News held by John Malone's Liberty Media (LCAPA, news, msgs).Larry Fink of BlackRock Financial (BLK, news, msgs) keeps a low profile but is known for being one of the smartest people in the asset-management industry. Under his leadership, BlackRock has become one of the country's top bond managers, and its stock has risen tenfold since a 1999 IPO. Fink, a former mortgage trader, isn't afraid to bet big, swapping shares equal to nearly half his company last year for Merrill Lynch's investment-management arm in a bid to build a large equity business.
There are 10 overseas CEOs on our list, including four new executives: Ratan Tata of Tata Sons, James Schiro of Zurich Financial Services (ZFSVY, news, msgs), Franck Riboud of Groupe Danone (DA, news, msgs) and Satoru Iwata of Nintendo (NTDOY, news, msgs). Tata, whose family-controlled company holds stakes in several major Indian companies, including Tata Motors (TTM, news, msgs) and Tata Steel, is one of India's top business leaders.
While rivals Microsoft and Sony (SNE, news, msgs) engaged in a hardware war to develop more-powerful video-game platforms, Nintendo came up with an elegant and popular alternative in Wii, and Nintendo shares have nearly doubled in the past year.
U.S. investors generally don't think of France as a breeding ground for world-class executives, but Riboud is an exception. Danone is a world-class food company and carries one of the industry's highest price-earnings ratios -- a clear sign of investor esteem. No wonder that PepsiCo, another well-managed enterprise, was rumored to be interested in buying Danone in 2005. James Schiro, an American, has engineered a revival at Zurich Financial since taking the top job in 2002.
Some unfamiliar names
In assembling this list, we seek to spotlight a mix of well-known and less familiar CEOs. Peter Rose, a co-founder and longtime CEO of Expeditors International (EXPD, news, msgs), a freight forwarder, is no household name, but he's known in the transportation industry for building a top-notch global logistics company. Thanks to its impressive growth prospects, Expeditors has a forward P/E ratio of 35, the highest among the 30 companies on the list.A pugnacious Rose doesn't have much patience for critics, whom he has skewered with glee in quarterly written reports in which he fields investor-related inquiries. When a bearish Street analyst complained about a lack of access in 2003, Rose shot back in one of those reports: "Your calls and e-mails requesting a visit have been ignored. The message is one that any seventeen-year-old boy would understand: You are not going to get your date."
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Another relative unknown is XTO Energy's (XTO, news, msgs) Bob Simpson, who has built arguably the leading independent energy company. The name of the game in the energy business is reserve growth and XTO has excelled at that, expanding its reserve base at a rate of 30% annually since going public in 1993. Not surprisingly, XTO shares have risen at a 30% annual clip since then.
We gave considerable thought about whether to keep Angelo Mozilo, Countrywide Financial's (CFC, news, msgs) CEO, on our list due to the shakeout in the subprime lending market. As the country's top mortgage originator, Countrywide is a sizable subprime lender. We're sticking with Mozilo because he has built a top-notch organization with strong risk controls that could emerge even stronger from the current subprime meltdown.
The names on our list represent some of the world's best and most shareholder-oriented business leaders. Management does matter, and great management usually starts at the top. Top investors such as Buffett recognize that.
This article was reported and written by Andrew Bary for Barron's.
Published April 18, 2007
