Charting the CEO 100 Index
article1999CEO 100 List

Practicing Great Communication and Listening Skills Is the Key

Psychologists tell us that the conscious mind can only absorb about 1-2% of all the information we sense. This makes noticing what is important, and bringing it to the useful attention of others difficult. Many people compound this problem by falling back on old habits of trying to do too much, trying to please everyone, and keeping too much to themselves. These old habits primarily serve to stall progress for the organization.

What habits can help create rapid progress, instead? Many less successful CEOs are making a mess in their companies by putting a finger in every pie as aggressive micro-managers who discourage their key people. The CEO who helps stock price the most will narrow his or her focus to primarily being a great communicator and listener who will create an environment where an outstanding management team can thrive. As former general Norman Schwartzkopf once said, "Be the leader you would like to have." Habit two for rapid progress is then building a strong management team who can also communicate and listen.

In the past articles I have written on this subject, selected security analysts have shared with you what they look for in the companies that have ranked high on the CEO 100 Index. This year, we took that information one step further by asking 100 portfolio managers and security analysts what habits are most useful for a CEO to have in order to accelerate stock price growth.

The key elements they reported are (1) building the management team in quality and depth, (2) creating trust and credibility by keeping promises and being candid about problems, and (3) bringing a focus on shareholder needs to the management agenda.

Building the Management Team

Building the management team may not sound like a communications task, but only a leader who really listens and acts accordingly can hope to attract and retain outstanding talent.

Here are some of the reasons why these professional investors favor these elements. Jake Dollarhide, a portfolio manager at Fredric E. Russell Investment Company notes that "Today in corporate America, there are so many new pressures and limitations on time, a strong management team with depth and competence in each person is necessary to make the business grow." Donald Hagen, CFA, observes that "The people on the Street recognize that if a company builds a strong management team, the executives will be candid and that leads to growing shareholder wealth." CEOs who do not focus on a strong management team often create a Bureaucracy stall by having each decision cross their desk, creating interminable delays. Also, a one-man band also fails to have time to listen to others, in order to locate opportunities for innovation. For example, Michael Dell's resurgence as CEO at Dell Computer (1 on the CEO 100 list, 5 on the Performance Rank) was closely tied to moves he made to strengthen his top management team after the company faltered earlier in the 1990s. In fact, Dell is the only CEO who has topped our list both before and after his company experienced problems. His resiliency was shown when Dell failed to meet revenue expectations in the forth quarter of 1998. Dell rallied the troops and began a series of major announcements released in the first quarter of 1999 including the alliance with fellow CEO 100 company IBM. Only time can test Dell's true mettle but he is emerging as a possible next Super Star manager. Dell has appeared four times in our top 100 and has always placed in the top 5 for growth and no less than 11 for CEO Performance. Because of his youth, he has the potential to appear on many future CEO 100 lists.

Creating Trust and Credibility

John Babyak at WHB/Wolverine Asset Management says that he is always looking for inflection points, indicating that credibility may be faltering. He gives the example of Boston Chicken. "It looked like the company was fine, but they needed money and secured a line of credit. To do that, they agreed to issue debt. The debt was at terms very favorable to the issuers, but not to the current holders. We asked why. That was the beginning of the crash. We questioned things from then on." Mr. Babyak also pointed out that "Companies have relationships with investors. Honesty, credibility, and trust are the foundations."

Some CEOs suffer from the Misconception stall that investors only want to hear good news. Clark Kendall at Rothchild/Pell Rudman says "Time after time, management shares their plan with the investment community and time after time management does not meet the expectations that they lay out." Edward Kasper of Summit Bank suggested Tyco International (ranked 34 and 22 ) as an example of a company that follows through on its promises by always concentrating on shareholder return, return on invested capital, free cash flow, getting rid of assets that do not contribute and reinvesting money in areas where they can be number 1 or 2 in the market. This strategy is now what investors depend on for Tyco. A number of analysts also cited Lou Gerstner of IBM (41 and 48) as someone who plays it straight with them.

To test these answers, we asked the CEO 100 to tell us about what they spend their time communicating, and what they had learned about the importance of communications. The CEO 100 places a lot of importance on meeting with employees other than senior corporate executives and division heads. The average time spent monthly with these lower-level employees was an impressive 26 hours. Shareholders also received 13 hours monthly with our CEOs. Sell-side analysts did almost as well with 11 hours averaged monthly. These time allocations would please our professional investors.

The CEOs also spent a lot of time with customers, 19 hours; and meaningful time with the communities the company serves, 9 hours; suppliers 4 hours; and competitors 4 hours.

Who are the key players in the management team that the CEO 100 CEOs spend time with? CEOs felt that they got the most important information for the company's success from their CFO, and heads of operating units. By far the most important outside source of information were the company's customers.

We then turned the question around to see which audiences most needed information from the CEO. The key interactions were with the CFO, and heads of operating units again.

In both dimensions, our CEOs feel that time spent with the corporate staff, outside board members, and suppliers are of far less significance.

The CEOs rated themselves high on communications skills, although better as speakers than as listeners. They rated their own companies as not much below their own skill level. Having a CEO who is a good communicator and listener is critical to setting a good example for everyone else. Ronald Reagan is their role model in many cases. They admire communicators who keep the message simple and understandable.

Mike Birck, the six-time consecutive repeater from Tellabs (49 and 10) cited Jack Welch as one of his role models. He particular admires the way Mr. Welch spends time at the G.E. training center as a teacher explaining the company's values to the future generations of G.E.'s leaders.

Their advice for other CEOs is to open your door and listen in face-to-face meetings. Also, they favor decentralizing, delegating, and trusting employees. These latter points obviously help to build the strong management team that investors care about. In fact, Robert Kohlhepp of Cintas (73 and 80) sets a high standard for himself on communications effectiveness, " We call each other partners at Cintas because we work together as a team to exceed our customers' expectations. We have an environment of open and honest communication" Dennis Bakke of AES (45 and 12) sets a very radical standard with regard to AES people. He asks, "Are they having fun in the workplace? Do they feel like they can use all their gifts and skills to serve the world without being squelched?" Wouldn't you like to have had your first job at a company where the CEO felt like that?

Bringing a Focus on Shareholder Needs

Perhaps the best evidence that these CEOs do listen is that their behavior so closely follows the advice they receive from portfolio managers and security analysts. Communicating outward, to portfolio managers and security analysts is also required to demonstrate that the CEO heard, and is doing something about shareholder needs. Words and actions together create a higher level of investor support.

We asked John Drury, CEO of Waste Mangement (93 and 78 on the 1998 CEO 100), what was the best measure of a CEO's communicating and listening skills. Most would agree with his answer, "If you and the other individual(s) involved get the desired RESULT, the communication was a success." As we scan the outstanding stock-price results that each of these companies has delivered, we can assume that we have just found a great and positive test of their communications' skills.

Donald W. Mitchell is chairman and chief executive of Mitchell and Company, a financial and management benchmarking and consulting firm in Waltham, Massachusetts, focused on how to make rapid, successful improvements in organizational performance. He also heads OUTSTANDING CEOs (a best-practice-improving organization whose members are primarily current and former CEO 100 CEOs) and TWENTY TIMES PROGRESS (an organization for teaching executives breakthrough methods for improving important management processes). He is co-author of The 2,000 Percent Solution: Free Your Organization from "Stalled" Thinking to Achieve Exponential Success, published in January 1999 by AMACOM Books. Additional research and analysis for this article were conducted by Carol Coles, president of Mitchell and Company and co-author of The 2,000 Percent Solution, and Mitchell and Company's Joan Henson. For more information, visit Mitchell and Company's Web sites (,,, and

All-Star Repeaters

Last year, five CEOs and their companies appeared on the CEO 100 list for the fifth time, something that had never happened before. This year, that success has been surpassed as three CEOs appear for an unprecedented six times: Michael Birck of Tellabs, Tom Golisano of Paychex, and Lowry Mays of Clear Channel Communications. Birck and Mays have now appeared for six consecutive years on the list.

Four other CEOs and their companies reached the list for a fifth time: Bill Gates of Microsoft, Charles McCall of HBO & Company, Harold Messmer of Robert Half (for five consecutive years), and Charles Schwab of Charles Schwab.

A great benefit for you is that having such sustained success helps to focus attention on the attributes that differentiate these executives from less successful ones. In our future articles, we will focus attention on describing the key lessons for you. Since most of these CEOs are not household names yet, you will be receiving new insights that will not be appreciated by others for years to come.

Perhaps the most interesting finding is that 7 out of 8 of these companies provide services, rather than physical products. This observation is all the more remarkable in that most observers believe that service companies lag manufacturing firms in management effectiveness, and that service companies are much more difficult to manage. Whatever the facts really are, our all-star CEOs are overcoming the popular wisdom. Of course, service companies had an advantage in 1998, because they were not affected very much by the economic downturn in Asia, South America, and parts of Europe.

Another important characteristic is that these companies were far more likely to compete based on innovative new services and products rather than simply providing the same offerings more efficiently. This jibes with earlier research with the CEO 100 that showed that these CEOs have felt that having innovative strategies is the best way to grow stock price. In recent conversations with most of these executives, it is clear that they are again launched on a new cycle of innovation that may drive their success forward for many more years in the future.

We look forward to reporting on the seven time repeaters next year.

The CEO 100 Investment Guide

One of the favorite theories about the efficiency of capital markets is that so much information flows that any investment method that is publicly disclosed will soon fail to work because so many people will begin to use it. The results of our CEO 100 investment management methodology seem to be contrary to that theory.

From 1992 through 1998, the CEO 100 Index has provided a total stock-price appreciation return of 223.6 percent while the S&P 500 has trailed at only 206.1 percent during that period. This result exceeds the returns of more than 95 percent of professionally managed portfolios and indexes during that time, despite not using any derivatives or debt. The investment methodology also has a lower portfolio turnover than most investment methodologies that are popular today. All the details that anyone needs to use the methodology are published in Chief Executive Magazine annually, and maintained year around on the Internet at, yet the methodology has significantly outperformed the S&P 500 on a cumulative basis since its inception.

The methodology simply requires you to buy equal amounts of the 100 stocks on each year's CEO 100 list at the end of the month in which the list becomes available, and hold them for one year. You continue to hold stocks that repeat from the prior year, sell those that did not repeat, and buy the new stocks appearing on the next list during the following year. Based on our experience to date, it is also clear that even these stellar returns could be greatly boosted by simply adding a mental or physical stop-loss to sell any stock purchased during the year that falls by more than 25 percent from the market price at the beginning of the current one-year period of time. Making this simple change would boost your cumulative returns to reach a rate almost 50% faster than the S&P 500 growth. We will continue to track this measure to see how the Efficient Markets Theory holds up in our case. So far, we have not yet been contacted by any institutional investors interested in using this method. Could your pension plan's returns use a boost? Here's an opportunity for you!

This investment methodology will often trail the S&P 500 for a given year or two, and then surpass it, because the S&P 500 Index is weighted by the size of the market capitalization of each stock, while the CEO 100 Index is an unweighted index (which means you buy equal dollar amounts in each company). As a Bull market rises, the fastest gains normally concentrate in the largest capitalization stocks so the CEO 100 Index will probably be at a disadvantage in the year ahead unless there is a major market correction after May 1999 and before May 2000.

In the immediate past, we have made 3 consecutive attempts to locate just a few stocks among the 100 that would do the best during the following year. This has not worked well. In the first year, the short list grew by 20.0% while the S&P 500 grew at 26.8%. In the second year, the short list actually fell by 24.6% while the S&P 500 grew by 28.6%. Through December 31, 1998, last year's third short list of America Online, PairGain Technologies, PeopleSoft, and Vitesse Semiconductor grew by 14.2% compared to a gain of 12.7% for the S&P 500. Based on this mixed performance, we have decided to stop experimenting with selecting only a few stocks for your consideration.

Running the Numbers

To produce the latest CEO 100 list of companies that delivered superior stock-price gains over the prior three years -- calendar years 1996 through 1998 -- we drew on the expertise of the Consulting Group at Zacks Investment Research. Accessing their data base of more than 6000 public companies trading in the United States, we selected the 100 fastest growing stocks where:

(1) the same CEO was heading the company from January 1, 1996 through December 31, 1998;

(2) the company was public from 1994 through 1998;

(3) the company's common stock had a market capitalization value of at least $1.13B at the end of 1997

This last measure is an annual update of our prior methodology, by matching the size of company we look at to the changes in the level of the S&P 500 since the CE index was begun.

The CEO Performance Index, introduced three years ago, returns in a slightly improved form. The Performance Index adjusts for size differentials among companies to better measure the CEO's management effectiveness relative to the average scale of opportunity to grow or perform. The size scale adjustments were done by regressions of logarithms of performance variable growth or the ending variable itself versus size, dimensioned to that variable across all 100 companies. A large company ranks higher for its business performance than a smaller company with the same business performance. All CEOs on the list were ranked by an average of their individual ranks on five measures: growth in book value per share, earnings per share, equity market capitalization, return on common equity; and the ending level of return on equity. For non-financial firms, four additional measures were added: growth in cash flow per share, net margin, and revenues per share; and the ending level of net margin. These measures were selected based on studies of superior business performance most often demonstrated in conjunction with rapid stock-price growth.

This year six foreign companies made our top 100 but could not be analyzed for a performance rank. Their data was not available from Zacks nor other public data sources. These companies are noted by an asterisk in the CEO 100 ranking chart.

The rank differential is simply the result of subtracting the value of the CEO Performance rank from the CEO 100 position. Companies with a negative differential have demonstrated faster stock-price growth than business progress, compared with their CEO 100 peers; companies with a positive differential show better business progress than stock-price growth. 1999 Chief Executive Magazine CEO 100 Index

1999 Mitchell and Company

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