Let’s be brutally honest. We all enjoy rankings of top CEOs – who’s the most respected, who’s the best paid, who’s the most popular. We like seeing who’s up this year, who’s down. But the truth is, most of these lists measure the wrong things. They tend to be short term or subjective, focusing only on results from the most recent year or relying on opinion polls. And if there’s one lesson we learned from the current financial crisis, it’s that short-term, subjective performance measures give rise to a culture of greed. We need to do better at judging who the truly great leaders of business are, rather than celebrating fleeting popularity.
To fix this problem, we created the first-ever objective ranking of CEOs’ performances based on a long-term measure: how well the CEOs performed for shareholders during their entire time in office, from the day they started to the day they left (or until recently, if still in office). That’s both long term and objective.
We were expecting the usual suspects to show up at the top of our list – and indeed many of them were there. No prizes for guessing that Steve Jobs would bag the number-one spot. Jeff Bezos, Meg Whitman and Eric Schmidt are also in the top 10. But there were equally many surprises – both in terms of omissions (Carlos Ghosn, Jeffrey Immelt, Sam Palmisano don’t make the top 200) and inclusions (Yun Jong-Yong, Mukesh Ambani and John Martin are all in the top six).
More interesting than the individual positions, however, are the general trends. Whether you’re a CEO, an aspiring CEO or a board member responsible for evaluating a CEO, you want to know whether you’re taking the right track. But before sailing off into the practical implications of our research, here’s how we did the math.
Take 2,000 leaders, divide by 10
We began with the CEOs of all companies that had been in the S&P Global 1200 and the S&P BRIC 40 for at least four consecutive years since 1997. Then we eliminated all those whose tenure had begun after December 2007 and before January 1995. In case you’re wondering, that’s why we excluded Jack Welch, Warren Buffett, Larry Ellison and Bill Gates – who would most likely measure up well against our general criteria of long-term performance.
That left us with 1,999 CEOs from 1,205 companies. All that was left to do was to quantify their performances in terms of stock market returns during their watch. But of course, it wasn’t quite that simple. We decided to use an average of three different metrics for this: country adjusted and industry-adjusted total shareholder returns, as well as the overall change in market capitalization. The idea was to minimize the influence of improvements in performance that were due to general industry and market trends rather than individual leadership – and to give CEOs of smaller companies a fair showing. (And yes, we’re well aware that shareholders are not the only stakeholders, but objective measurements for the others aren’t widely available.)
The final statistical step was the easiest: Put all the CEOs in order and publish the top 200 – hence the list printed here. Those who made this final cut put in some spectacular performances. On average the top 200 delivered a total return of 584 percent to shareholders over their tenure (adjusted for inflation and exchange rate fluctuations) – equivalent to over 26.5 percent a year. And if we compare the top 50 in our list with the bottom50 in the sample of 1,999, the results are stark: an average increase of $48.2 billion in shareholder value versus an average loss of $18.3 billion.
However, the list was just the beginning. The analysis of the ranking is where the real learning starts. And so to the most interesting – and useful – of our conclusions.
In praise of the QUIET CEO
Yun Jong-Yong, former CEO of Samsung and number two on our list, is usually described as “soft-spoken.” Yet there’s no doubt that he’s a star performer.
When he took over the top job in 1996, Samsung was just another electronics company, producing memory chips and cheap microwave ovens. Worse, it was in deep financial trouble. Yun streamlined, restructured and cut costs. By the time he retired in 2008, having spent his entire career with the Samsung Group, the company was a high-tech innovator and industry leader. Market capitalization had increased by $127 billion and the industry adjusted total shareholder return was a remarkable 1,458 percent.
Most people know about Samsung’s cool products: sleek cell phones and flat-screen televisions. But Yun Jong-Yong himself is no household name, at least outside his native Korea. Like John Martin of Gilead Science (at number six), the California biopharmaceutical company, he’s one of those quiet leaders who doesn’t make a media splash.
In fact, there’s comparatively little correlation between our list and other CEO rankings, highest-pay lists or generally high media profiles. Perhaps there’s something to be said for staying out of the limelight and concentrating on posting great results, year after successful year.
Benchmark beyond your country and industry
No particular geography has a monopoly on excellence. At least that’s what the 25 countries represented in our top 200 suggest. CEOs of U.S.-based companies fill 91, or 45 percent, of the slots, but then they also account for 42 percent of the original sample of 1,999.
In the same way, industry doesn’t offer a strong indication of who will perform best. True, some sectors are particularly prominent in the top 200: energy, telecommunications, healthcare, real estate and retailing. But these aren’t all high-growth industries. The prominence of retailing (Robert Tillman of Lowe’s and Terry Leahy of Tesco are both in the top 20) should reassure CEOs that they can perform exceptionally even when their sector hits a mediocre patch.
Never underestimate the insider
Should a company look inside or outside for its next CEO? It’s a question of much debate. There’s no doubt that an outsider can help to engineer change and slay sacred cows. Take John Thompson. He became CEO of lackluster Symantec in 1999 and over the course of 10 years turned it into a shining example.
However, according to our research, insiders have the edge over outsiders. Those who have risen to the top through the ranks generally tend to be better performers than those parachuted in from elsewhere. In fact, insiders ranked on average 57 places better than outsiders in our list of 1,999 CEOs. Of course, if you’re the chairman of a company that’s in trouble, it must be tempting to look outside for your new CEO, but – according to our data – even in these circumstances outsiders do no better than insiders.
An MBA helps. Yes, really.
As business-school professors you’d probably expect us to say that an MBA boosts CEO performance. But in the wake of the financial crisis, when MBA programs were accused of fostering greed-enhancing, value-destroying behavior (and worse), we approached this part of our analysis with some trepidation.
Information about qualifications isn’t readily available in some countries so we had to limit ourselves to the subset of CEOs based in Germany, Britain, France and the U.S.: 1,109 of them to be exact. Of these, 32 percent had an MBA. But members of this minority ranked, on average, a full 40 places higher than their colleagues in the non-MBA majority. Indeed four of the top 10 (John Chambers, John Martin, Meg Whitman and Hugh Grant) have an MBA certificate hanging on their wall. So it’s official: MBA CEOs, on average, add rather than destroy value.
Consider your runway before taking off. Or landing.
According to conventional wisdom, it’s hard for a CEO to excel if he or she inherits a struggling company. You can’t make a silk purse out of a sow’s ear, as the old saying goes. On the other hand, the scope for improvement in a poorly performing firm is much greater than in one that’s doing well. And that’s exactly what our results seem to show. We scanned our sample for CEOs who had inherited weak organizations – and found that two consecutive years of bad results immediately prior to taking the helm created a great runway for turning around the company and delivering value to shareholders. This group of CEOs ranked on average 96 places higher than those who had taken over previously high-performing firms.
When we drilled down further to the 790 companies for which we had data on both predecessors and successors, we concluded that inheriting the CEO slot from a star performer is in fact a disadvantage. Yes, you read that right – taking over a successful firm is bad news if you want to leave a legacy of great performance as a CEO. In fact we found very few cases of companies with two consecutive CEOs that both ranked highly. Conventional wisdom, it seems, is doomed to be overturned yet again.
Take the long road – you’ll get a different view
The need to question conventional thinking is in fact the overall message that we take away from our foray into the rankings game. If business really is to learn from the mistakes that led to the recent crisis, then it has to start measuring CEO success against longer-term criteria. Our article in the January/February edition of Harvard Business Review, where we first presented our research, even goes so far as to include a ranking of CEOs whose companies performed well after they left.
Our findings should encourage all business leaders to reconsider how they assess their own performance. So take our top 200 exercise less as a ranking of others and more as a plea to lift your sights from last quarter’s figures and look to the horizon. You might just start to see yourself differently – and raise your game to new heights at the same time.
Morten T.Hansen is a management professor at the University of California, Berkeley, School of Information, and at INSEAD, the international business school with campuses in France, Singapore and Abu Dhabi. Herminia Ibarra is a professor of organizational behavior and the Cora Chaired Professor of Leadership and Learning at INSEAD. Urs Peyer is an associate professor of finance at INSEAD.