Harvard Business Review has released its annual list of the world’s top chief executives – here are some of the key take outs.
Focus on non-financial factors
‘The CEO 100’ is compiled from companies that appeared in the S&P Global 1200 index which covers North America, Europe, Asia, Latin America and Australia. CEO’s are ranked according to key financial measures but also on environmental, social and governance (ESG) ratings. In fact, the weighting for ESG scores was increased to 30% for this year’s list – a change which reflects the shift in focus that investors are taking when looking at the performance of a company. Amazon CEO Jeff Bezos dropped off the list due to the companies ESG performance.
Leading the list is Jensen Huang – Founder, President and CEO of NVIDIA, a graphics-processor company started in 1993 that helped build the gaming market into the largest entertainment industry in the world today. Born in Taiwan and with a net worth of $4.6b, Jensen is a self-made billionaire who has donated millions to build engineering and cancer labs at a number of universities in the US.
Longevity of tenure
On average the CEOs appearing in the list have been in the role for 15 years. Research from business magazine Forbes suggests that the average tenure for CEOs in S&P 500 companies is 9.7 years. Locally, PwC’s annual CEO survey shows that New Zealand CEOs are generally more likely to be long-serving (i.e., been in the role for 11 – 25 years).
Impact on diversity
Longevity of tenure matters in the context of gender diversity. For those in the list, the majority took on the role at the age of 45. That does mean women are underrepresented however four females made it into the rankings this year and this is an upward trend (three in 2018, two in 2017).
More on CEO longevity
When compiling the list, HBR and their global recruitment partner delved deeper into CEO tenure and its impact on performance. They identified five distinct stages of value creation that many CEOs will experience during their tenure.
Year 1: The Honeymoon – above average performance; mostly due to an enthusiasm for change by investors.
Year 2: The Sophomore Slump – slowdown; mostly due to unmet expectations rather than problems.
Years 3-5: The Recovery – projects and opportunities come to fruition and this is reflected in performance.
Years 6-10: The Complacency Trap – prolonged stagnation and mediocre results mostly due to a focus on the status quo.
Years 11-15: The Golden Years – CEOs who survive this long go on to experience their best value creating years.
In a nutshell, environmental stewardship, social responsibility and governance are increasingly relevant performance metrics. This extends not just to how a business delivers value for its shareholders, but also its impact on broader stakeholder groups including employees, customers and community. And there is increasing pressure on Boards to build trust and transparency with CEOs and be able to differentiate between a performance slump and a mediocre performer.
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