Wednesday, December 22, 2010

CEO Wealth Creation Index for 2010

Want to know who created wealth and who destroyed it and how/why they did it?

I thought so.

Amplify’d from

2010 CEO Wealth Creation Index Shows a Few Surprises

The third annual ranking of the Chief Executive magazine/Applied Finance Group wealth creators—and destroyers—sees new contenders surface and several that sustained performance through tough times.

By Drew Morris and Michael Burdi

Now in its third year, the CEO wealth creation index developed by Chief Executive magazine, Applied Finance Group and Great Numbers! attempts to identify those business leaders who have performed best in creating true economic value—as opposed to mere accounting value—as measured by GAAP metrics. Creating value is, after all, why CEOs do what they do. The WCI leans heavily on the concept of economic margin (EM). (EM measures the degree to which a company makes money in excess of its risk-adjusted cost of capital.) While there is no single metric that is perfect, EM comes close, in that it isn't dependent on share price in assessing management's impact on value creation. (The rankings do not include REITs among the S&P 500 and only assess companies whose CEO has been in the job for at least three years in order to get a fair appraisal of CEO actions under varying conditions. For more details on methodology, see "Ranking CEO Wealth Creation".)

The past 12 months have not been an easy time to grow—or for companies with high levels of EM to maintain them. The more profitable a company is, the more difficult it is to maintain high levels of profitability when competitors step up and target market leaders. Some companies find that the "easy money"—high margins on a product or market—ultimately dries up. Also, if a business model is successful and a company is making healthy profits, it becomes a target.

Similarly, the regulatory environment can make it difficult for companies to maneuver. Both financial and healthcare companies have become the worst-performing sectors over the last 12 months. Even the well-managed ones struggle with maintaining past success. For example, Master- Card, which led the rankings last year, couldn't maintain its change in EM momentum and slipped to No. 24, still a respectable score. Federated Investors, however, has consistently stayed in the top three since the WCI's inception.

In entering the S&P 500 this year, vaulted to the top of this year's rankings. The company's EM had been dragged down in earlier years, but was consistently high in more recent years. It has also had tremendous success in moving its U.S. business model to international markets, with non-U.S. revenue doubling last year to top U.S. revenue. In addition, Priceline kept its operating costs in check, limiting them to 20 percent of year-on-year growth while pursuing an industry-leading growth in revenues of 27 percent. This allowed the firm to take market share from Expedia, another high scorer. Because the company offers a commodity product in a cutthroat industry marked by extreme ease of entry, it's difficult to assess whether Priceline can maintain its high-wire act. CEO Jeffrey Boyd says, "The most important metric we use is gross bookings growth, which refers to the overall value of all the travel products we sell. The Internet and online travel are still in their infancy in many parts of the world. As a global business, our focus is on increasing overall sales and building our market share. We also look to maintain or improve our net operating margins so we can grow profitably. When interim results don't match expectations, our management team evaluates whether it is a supply, marketing or cost issue and makes adjustments accordingly."

As the online travel market grows more saturated it will be more difficult to differentiate. But Priceline enjoys a healthy balance sheet and has slightly less cash than debt, so it gets high marks for managing growth and profitability.

Other stellar wealth creators include Jeffrey Bezos of Amazon and Douglas Baker of Ecolab, both of whom return to the top 10 from last year, showing that strong execution skills translate into wealth-creating staying power. Daniel Amos of Aflac, Steve Jobs of Apple, Ian Cook of Colgate-Palmolive, John Wiehoff of C.H. Robinson Worldwide and Daniel Hambuger of DeVry return in 2010 among the high scorers. David Yost of Amerisource Bergen, Theodore Solso of Cummins, Gregory Johnson of Franklin Resources, Mark Templeton of Citrix Systems, Chris Begley of Hospira and James Rohr of PNC Financial were among the leaders who advanced at least 100 positions in ranks since 2009.

Less stellar performances were logged by Windstream's Jeffrey Gardner, ConAgra's Gary Rodkin and FirstEnergy's Anthony Alexander, who are all among those who dropped more than 100 places since last year.

Click here to view complete list of companies and their respective rankings

See more at

No comments:

Post a Comment