The Best-Performing CEOs in the World
The knock on most business leaders is that they don’t take the long view—that they’re fixated on achieving short-term goals to lift their pay. So which global CEOs actually delivered solid results over the long run? Our 2014 list of top performers provides an objective answer.Leaders for the Long Term
A few years ago I sat down with Starbucks founder Howard Schultz in his Seattle office to discuss the challenges of being a CEO. At one stage I asked whether he felt there was a disconnect between the person he would like to be and the persona he needs to project while running a public company. Serving as a CEO, he said, “has been difficult—and lonely.” Yet he’d found that it was indeed possible to be values-driven while also winning Wall Street’s respect. “But the only ingredient that works in this environment is performance—so we have to perform.”
Schultz has delivered on both fronts. He has become increasingly progressive, speaking out on topics ranging from presidential politics to gay marriage. And though that might make some shareholders cringe (and others applaud), he has resoundingly—and consistently—come through for investors. As a result, Schultz has earned a spot (#54) on our list of the 100 best-performing CEOs in the world. It’s a varied ranking, whose honorees represent 22 nationalities and countless personal values and styles. Another Seattle-based CEO, Amazon founder Jeff Bezos, comes out as #1.
How do you measure a CEO’s worth? We decided to approach the task scientifically, basing the ranking on hard data, not on reputation or anecdote. Specifically, we looked at the increase in total shareholder return and market capitalization.
How We Calculated the Rankings
We also focused on long-term—or at least longish-term—results. Our rankings consider the performance of active CEOs over their entire stints, and we’ve included only those who have been in their jobs for at least two years. (The median term for all the CEOs we studied is seven years.)
The top CEOs have undeniably been effective. The top 50, on average, have delivered total shareholder returns of 1,350% (adjusted for exchange-rate movements) during their time on the job. That translates into an annual return of 26.2%. Adjusting for industry effects, average total shareholder returns for the top 50 are 1,161%, and for country effects, 1,087%.
We acknowledge, of course, that being a good CEO is about far more than just investment performance. Leading a company and creating value depend on many skills that are hard to measure—strategic vision, authenticity, long-term planning. And investors certainly aren’t the only stakeholders that need tending to; the best-run companies connect effectively with customers, employees, and the communities where they operate.
But we want this ranking to be as objective as possible, so we’ve put a premium on what we can measure precisely. Someday, we hope that there will be equally concrete ways to account for “intangibles”—environmental impact, employee satisfaction, customer engagement—so that we can confidently add that data to the formula. Until then we can only supplement this list with parallel data that tries to track some of these “softer” attributes.
Along those lines, we asked the Reputation Institute, a reputation management consultancy, to rank our top 100 CEOs in terms of these other skills—work environment, citizenship, governance, leadership, and so on. The results suggest, I’m afraid, that doing well doesn’t correlate much at this stage with doing good. That said, a few superstars scored high across the board, including Bezos, who, despite Amazon’s well-publicized entanglements with publishers and authors, was #4 on the Reputation Institute list. (Schultz finished in the middle of the pack.)
What else do we know about the CEOs on this list? Most are men—only two women, Debra Cafaro of Ventas and Carol Meyrowitz of TJX, made the top 100—and the median age is 59. (This is similar to what we see in the entire group studied, in which 3% of CEOs were female and the median age was 58.)
Thirteen CEOs are of nationalities that differ from their companies’. (Though it’s still not a global market for CEOs, that figure is more than double what it was in the 2013 version of this ranking.)
And while the top 100 have each experienced their own unique journeys to success, there do seem to be two preferred pathways. Over a quarter of the CEOs have MBAs, and nearly as many had studied engineering.
We also looked at CEO pay, to see how that related to performance. To do so, we worked with Equilar, a company that collects information on compensation, to tally the most recent pay packages for the top 100. These elite CEOs are very well paid, as are most CEOs. But on average the executives on our list receive more of every form of compensation than their peers do.
Disney’s Bob Iger, #60 on our list, is the highest paid among our 100, with a total package of $34.3 million. That doesn’t make him the world’s best-paid CEO. In fact, according to Equilar, 13 CEOs earned more, led by Charif Souki of U.S. gas developer Cheniere Energy, whose 2013 compensation totaled $141.9 million.
So what’s the ultimate takeaway from this ranking? In many ways, Bezos’s place atop the list says it all. Here’s a CEO who has frequently underperformed in the short term while continuing to make big bets on the future. Amazon often reports quarterly losses, even as sales continue to rise. And though the company is subject, like many firms, to dramatic share-price swings, Amazon and Bezos have a long-term track record of delivering shareholder value that is second to none.
How much do you know about the facts and figures that define this elite group? Take this short quiz to find out.
Why Engineers Make Great Leaders
Twenty-four of HBR’s 100 best-performing CEOs have undergraduate or graduate degrees in engineering, compared with 29 who have MBAs. (Eight CEOs have both degrees.) At technology or science-based companies, it’s not a big surprise to find an engineer at the helm. But engineers thrive at the top of other kinds of firms, too: Examples include Carlos Alves de Brito of brewing giant Anheuser-Busch InBev, Jeffrey Sprecher of the financial services firm Intercontinental Exchange, and Kari Stadigh of the insurance company Sampo.
What makes an engineering degree useful to people leading a business? “Studying engineering gives someone a practical, pragmatic orientation,” says Nitin Nohria, the dean of Harvard Business School, who holds an undergraduate degree in chemical engineering from the Indian Institute of Technology, Bombay. “Engineering is about what works, and it breeds in you an ethos of building things that work—whether it’s a machine or a structure or an organization. Engineering also teaches you to try to do things efficiently and eloquently, with reliable outcomes, and with a margin of safety. It makes you think about costs versus performance. These are principles that can be deeply important when you think about organizations.”
Executive recruiter James Citrin, after examining the list’s numbers, notes an interesting trend: CEOs who were hired into firms as outsiders were more likely to have an engineering degree than insiders who were promoted into the job. “That connects with my experience,” says Citrin, who leads Spencer Stuart’s North American CEO practice. “When boards are making decisions, and they know it’s riskier going outside, it often gives them comfort if a candidate has studied engineering.” Why? Citrin says engineers excel at “architectural thinking” and logical problem solving. The only downside of an engineering background, Citrin says: It might be a small strike against a candidate who wants to lead a company in a creative field such as fashion or advertising.
How They Stack Up on Pay
One of the downsides of a global CEO ranking is that it’s difficult to offer a comprehensive comparison of these leaders’ pay, because countries require different levels of transparency with executive compensation. With help from the compensation analysis firm Equilar, we compiled pay data on 68 of our top 100 CEOs. (The remaining 32 are based in countries that lack public data on executive pay.)
The takeaways from our pay analysis:
No surprise: American CEOs earn more. The median pay for U.S. CEOs on HBR’s list is $12.1 million, compared with $6.4 million for non-U.S. CEOs for whom we obtained data. All 10 of the highest earners lead U.S. companies. “That’s consistent with what we’ve seen for years: that U.S. CEOs make more,” says Aaron Boyd, Equilar’s director of governance research. The pay calculations incorporated each executive’s salary, cash bonus, equity awards, option awards, and “other,” and the biggest difference between U.S. and non-U.S. pay packages was the size of equity and option grants—components that are particularly valuable when global markets are rising. Those components are also especially lucrative to CEOs who generate above-average total shareholder returns.
High-performing CEOs earn more than the average. Last year the median compensation for S&P 500 CEOs reached $10.1 million, breaking into eight digits for the first time. That’s 20% below the amount earned by the U.S. CEOs on our list. Equilar’s analysis shows that, on average, they outearned other CEOs in every category—including salary, bonus, equity awards, and options. And since our top 100 CEOs produce superior shareholder returns in the long term, their equity and options will obviously appreciate with their stock. In addition, the top 100 tend to stay in their jobs longer than most CEOs, increasing their lifetime earnings.
Family and founders sometimes “earn” less. It may seem ironic that Jeff Bezos, the #1 CEO in performance, comes in second-to-last in compensation, earning a 2013 salary of $81,000 and total compensation of $1.7 million (most of which consists of company-provided security). While Bezos’s annual comp is far below the CEO average, Amazon’s founder holds an 18% stake in the company, which means that for every $1 increase in Amazon’s share price, Bezos’s net worth rises by $84 million. It also makes him the world’s 20th richest person, by some calculations.
Money Isn’t Everything
While HBR’s global CEO ranking takes a critical step forward by gauging CEOs on long-term, rather than short-term, gains, it nevertheless looks at performance in purely financial terms. Yet a company’s greatness also depends on nonfinancial factors—like social responsibility and integrity. Though these are harder to quantify, there are organizations that try to track such factors and compare how companies measure up on them.
For a broader view of our top 100, we asked the Reputation Institute, which ranks global companies annually according to how positively they are regarded, to reorder our list. Its RepTrak methodology has respondents rate companies on seven dimensions—products and services, innovation, workplace, governance, citizenship, leadership, and performance—and then calculates a score of 0 to 100 for each.
The companies on our list are those whose reputations were rated highest by respondents in their home countries.
When we looked at the top 10 firms, a few things jumped out:
Bezos wins again. We can probably chalk the dual achievement up to his constant pursuit of a clear vision: to be “the most customer-centric company in the world.” Still, it presents a marvelous irony. The leader most adamantly ignoring Wall Street pressure creates the most value—and the company that spends next to nothing on advertising and PR ends up with a great reputation.
There is really no correlation. The order of names on the two lists is utterly unrelated. While two of the top 10 CEOs from our ranking also lead companies that are in the top 10 reputation-wise, so does a CEO ranked 98th on the original list. In fact these reputation winners are pretty evenly distributed in terms of their value creation.
It’s fair to call it a CEO ranking. Sure, this is a ranking of company reputations, not the reputations of the CEOs themselves—and what is being measured here is their current value, rather than any change in value across the CEO’s tenure. We’re still comfortable with hanging these companies’ reputations on their leaders. First, because among these 10, the average tenure in office is over 12 years—surely enough time to make a mark. Second, because no one is better positioned than the CEO to effect the changes that improve (or ruin) a company’s image.
For longtime leaders, it might be personal. One of the CEOs of our reputational top 10 is a founder (Bezos); one is the son of a founder (Hayek), and two are close to that (Wolfson, whose father was chairman of the same company, and Riboud, whose father spent many years in the same CEO seat before him). Nearly all the rest have been with their companies a long while—as in 27 to 35 years. At least two explanations are possible. Perhaps people outside the company respond well to long-term leaders, so reputation scores tend to rise with tenures. Or it could be the other way around: Maybe leaders whose identities are so thoroughly tied up with their companies’ are more attuned to leaving legacies that aren’t only about financial value created.
The Numbers in Jeff Bezos’s Head
by Daniel McGinn
On a Friday afternoon in 2004, Amazon manager Vijay Ravindran received an unusual invitation—to a Saturday morning meeting with Jeff Bezos at the boathouse adjoining the CEO’s lakefront home. When the attendees arrived, Bezos told them he’d received an employee suggestion that Amazon supplement its existing shipping policy—free shipping on orders over $25—with a new offer. Customers would pay an annual fee for free shipping on most products, regardless of order size. “Jeff was extremely energetic—he felt this was an opportunity to build something that was going to be very important,” Ravindran recalls. Hence the urgent weekend meeting at the lake.
The proposal sparked hushed concerns and consternation. Amazon’s finance team worried that waiving shipping charges would gut margins. “There were people who thought it was an extremely bad idea—the spreadsheets uniformly painted pictures of losses,” Ravindran says. Bezos ignored the objections, convinced that the offer would spur more orders. That intuition proved correct just weeks later, when the program, Prime, launched. Customers who’d previously made a few purchases a year were suddenly ordering multiple times a month. “Instead of looking to protect the current business, Jeff saw the upside,” says Ravindran, now chief digital officer at Graham Holdings. “It was the most impressive display of business leadership I’ve seen in my career.” Today tens of millions of customers pay $99 a year for Prime, which generates more than $1 billion in membership fees and incalculable incremental sales.
Disregard for orthodox approaches is not unusual for Bezos. Amazon’s culture famously forbids the use of PowerPoint, for instance. But the frequency with which he rejects spreadsheet-driven decision making has probably played a larger role in Amazon’s growth. With 132,000 employees and $75 billion in annual revenue, Amazon is a 20-year-old corporation that routinely posts losses. (Its operating loss may top $800 million in the third quarter.) Unlike Apple, which boasts precisely how many iPhones it’s selling, Amazon steadfastly refuses to give Wall Street basic data, such as how many Kindles it has sold—an opaqueness that even Bezos fans say hurts the stock price. Like every CEO, Bezos talks about managing for the long term—but he walks the talk, shrugging off investor concerns even as Amazon’s stock dropped from a high of $407 in January 2014 to $307 in August. Over the long haul, however, there’s no disputing his ability to generate shareholder returns: The company’s stock performance since its 1997 initial public offering has been so strong that its share price could have dropped to $250, and Bezos would still rank as HBR’s best-performing CEO.
He and his team have achieved that feat by sticking steadfastly—even boringly—to a few key principles (outlined in his 1997 shareholder letter, which he still sends to investors every year). Instead of focusing on competitors or technology shifts, they continually invest in getting a little bit better. In their core retail business, they grind out incremental improvements in delivery speed and product offerings while chipping away at prices. As Amazon continues to move into completely new industries—it’s now a serious player in cloud computing, online video, e-readers, and other devices—some see a company that’s pioneering a new model. “In some ways he’s invented a new philosophy for running a business,” says Brad Stone, author of The Everything Store, a best-selling Bezos biography. “Even as Amazon grows, he’s focused on reinvesting to make it even bigger—and because that means it shows no profits, he avoids paying dividends or corporate taxes.”
While Amazon is younger than Walmart or Apple, its creation story is becoming equally familiar. After graduating from Princeton with a computer science degree in 1986, Bezos spent eight years on Wall Street. In 1994 he and his wife, MacKenzie—a Princeton grad and his former coworker—left New York for Seattle, setting up shop in their garage. Jeff and a few employees began building a website that would sell books. Amazon went live in July 1995 and, in its first month, sold books to customers in 50 states and in 45 countries. It quickly expanded into CDs and other goods.
While consumers gravitated to Amazon, some investors remained skeptical. Henry Blodget, then a Merrill Lynch analyst, recalls an investor conference in the late 1990s at which Bezos patiently explained why Amazon allowed customers to return huge flat-screen TVs for a full refund with no questions asked—a costly policy meant to drive customer satisfaction. “Almost no one understood the potential for the company, its business model, and its stock,” says Blodget, who rose to fame for his seemingly outlandish 1998 prediction that Amazon shares, which were trading around $200, would hit $400—which they did, three weeks later. (Blodget now runs Business Insider, a website in which Bezos is an investor.)
Today Amazon is so successful that people often assume it has enjoyed a linear rise—like a dominant sports team cruising, as expected, to the championship. But for several years, Wall Street questioned Amazon’s viability. “At analyst conferences during the early 2000s, I saw fund managers openly laughing at him,” recalls Marc Andreessen, the entrepreneur-turned-venture-capitalist. “They’d say, ‘That guy is nuts, and that company is going to go bankrupt.’ That’s one of the things I really admire about him, and it’s what I talk to our founders about. It’s very easy to say you want to be Jeff Bezos today. It’s a lot harder to be Jeff Bezos during that ‘valley of death’ period. It was his willingness to go through that valley and to come out the other side that makes Wall Street give him the benefit of the doubt. A lot of people would have given up, but he didn’t. That’s what I admire most about his story.”
The other big misconception: that Bezos doesn’t care about profitability. By all accounts Amazon’s mature businesses (such as online retail) are profitable; it’s his deep investments in new businesses that create accounting losses, which he regards as a false measure of performance. “He’s really focused on cash flow and what kind of return on invested capital is being created,” says Warren Jenson, Amazon’s chief financial officer from 1999 to 2002. Bill Miller, a fund manager at Legg Mason who has held shares in Amazon since it went public, says Bezos shows deep understanding of the point Clay Christensen made in his recent HBR article “The Capitalist’s Dilemma,” which argued that most managers focus on the wrong financial metrics. “Jeff really takes theory seriously—he started out wanting to be a theoretical physicist,” Miller says. “In terms of financial theory, he’s trying to get away from the behavioral problems that afflict other companies” that try to maximize the wrong numbers. Other Bezos watchers go even further: At a time when many large companies (most notably Apple) are hoarding idle cash, shouldn’t we be lauding Amazon’s ability to continually find entirely new industries to reinvest and innovate in, rather than criticizing the losses driven by those outlays?
Bezos is unperturbed by criticisms of his financial management. He says he’s always been transparent about Amazon’s focus on long-term cash flow (instead of net profit). “As far as investors go, our job is to be superclear about our approach, and then investors get to self-select,” he says. He insists Amazon discloses far more data about its business than is legally required and is silent only about numbers that could help competitors.
Some criticism goes beyond his financial theories, however. Like Walmart, Amazon has been condemned for upending the economics of industries in ways that destroy competitors and vaporize jobs. Since 2007, when its Kindle ignited the e-book business, Amazon has been at war with publishers for using its leverage to price e-books at discount levels. Over the past two years the company has drawn fire for its treatment of distribution-center workers and the hyperaggressive steps taken to weaken rival e-commerce players such as Zappos and Diapers.com. (It eventually acquired both.) Bezos’s personal management style, which by some reports can be abusive and demeaning, has also been reproached. But Stone believes Bezos has mellowed with age. “In fairness, a lot of the examples in the book of him behaving that way are older ones, and I think he’s gotten better over time,” Stone says.
Even critics admit that Bezos has an unusually ambitious imagination—one likely to have an impact far beyond online retailing. He founded Blue Origin, a company experimenting with space travel, and last year purchased the Washington Post, where he spends one day a month in hopes of finding a viable financial model for journalism. And at Amazon, his strategy of making bold moves into adjacent industries could become a model for other managers. Scott Cook, the Intuit founder and former Amazon director, compares Amazon to companies such as P&G (which invented brand management) and Toyota (which invented lean manufacturing). “I think Amazon is one of those—what they’re doing is inventing better ways for companies to operate,” Cook says.
That spirit could continue for some time. Bezos is 50—about the same age Bill Gates was when he retired from Microsoft to pursue philanthropy at the Gates Foundation, whose offices are visible from the roof deck at Amazon’s headquarters. But Bezos seems unlikely to make that kind of transition. “I’ve never gotten any vibe off of him that he wants to do anything else,” says Andreessen. “He’s monomaniacally focused on Amazon. My sense is he’s going to be running it another 30 years—and shareholders will be lucky if he does.”
Jeff Bezos in His Own Words
In early August Amazon’s founder and CEO spoke with HBR’s Adi Ignatius and Daniel McGinn at the company’s Seattle headquarters. Here are edited excerpts from that conversation:
Bezos: I bet 70% of the invention we do focuses on slightly improving a process. That incremental invention is a huge part of what makes Amazon tick. There’s a second kind of invention, which is more clean-sheet and larger scale—things like the Kindle or Amazon Web Services. We have a culture that supports the risk taking and time frames required for that.
Your stock has taken some hits this year. Does that affect the way you manage?
Amazon’s stock has always been somewhat volatile. Even though we have significant revenues, we invest in so many new initiatives that in some ways we’re still a start-up. Volatility is part and parcel of being a start-up.
You say you focus on customers, not competitors. But how do you react to Google’s teaming up with Barnes & Noble to offer same-day delivery?
You can’t insulate yourself from competition by being customer-obsessed. But if that obsession leads to invention on behalf of customers, it helps you stay ahead.
You’re now making your own big investments in same-day delivery. How do you know customers want it?
In our retail business, there are three big ideas: Low prices, vast selection, and fast, reliable delivery. We continually work on all three. We don’t know what technologies might be invented or who our competitors will be, so it’s hard to build strategies around those uncertainties. But I do know that 10 years from now, nobody is going to say, “I love Amazon, but I wish the prices were a little higher.” It’s the same thing with fast delivery.
Has the backlash over your dispute with Hachette about e-book pricing surprised you?
The publishing industry changes very slowly. The paperback, which was developed before World War II, was the last radical invention before the e-book. All the arguments that the literary establishment made against paperbacks—they’re devaluing books, publishers are not going to be able to invest in literature—are being made about e-books, too. Today we know the arguments about paperbacks were wrong, and they’re equally wrong about e-books. It will take a while for the incumbents to come to terms with e-books, but we’re determined to get e-books to be less expensive.
What other CEOs do you admire?
I’m a huge fan of Jamie Dimon, Jeff Immelt, and Bob Iger. They all have deep keels. They have conviction around certain business ideas. Warren Buffett is another one. They can’t be blown around, and I think that’s pretty rare.
View the list of 100 best performing CEOs
View the list of 100 best performing CEOs