Page 126 - Harvard Business Review (November-December, 2017)

FEATURES

Statement of Ownership, Management, LEADERSHIP CHANGE MANAGEMENT
and Circulation
FEATURE THE BEST-PERFORMING CEOs IN THE WORLD 2017
HOW WE CALCULATED THE RANKINGS companies. (Several companies had co-CEOs.) tenure: the country-adjusted total shareholder financial rank. Incorporating three metrics is a research firms and works mainly with companies FEATURE WHAT EVERYONE GETS WRONG ABOUT CHANGE MANAGEMENT
balanced and robust approach: While country-
They ran enterprises based in 31 countries.
return (including dividends reinvested), which
that want to improve their own ESG performance.
To compile our list of the world’s best-performing Our research team, headed by Nana von offsets any increase in return that’s attributable adjusted and industry-adjusted returns risk being We computed one ESG rank using Sustainalytics
merely to an improvement in the local stock
CEOs, we began with the companies that at the
end of 2016 were in the S&P Global 1200, an index Bernuth and assisted by the coders Christina von market; the industry-adjusted total shareholder skewed toward smaller companies (it’s easier to ratings and one using CSRHub ratings for every
firm in our data set. To calculate the final ranking,
that reflects 70% of the world’s stock market consultants Morand Studer and Daniel Bernardes return (including dividends reinvested), which the change in market capitalization is skewed we combined the overall financial ranking
Plate and Phachareeya Ratchada and the data
get large returns if you start from a small base),
capitalization and includes firms in North America, of Eleven Strategy & Management, gathered each offsets any increase that results from rising toward larger companies. (weighted at 80%) and the two ESG rankings
To measure performance on nonfinancial
Europe, Asia, Latin America, and Australia. We
firm’s daily financial data from the CEO’s first day
fortunes in the overall industry; and change in
(weighted at 10% each), omitting CEOs who left
issues, HBR consulted with Sustainalytics, a
office before June 30, 2017.
on the job until April 30, 2017, as compiled by
identified each company’s CEO but, to ensure
market capitalization (adjusted for dividends,
HARVARD BUSINESS REVIEW OWNERS that we had a sufficient track record to evaluate, Datastream and Worldscope. (For CEOs who took share issues, and share repurchases), measured leading provider of environmental, social, and HBR’s list of best-performing CEOs was
office before 1995, we calculated returns using
a start date of January 1, 1995, because prior
excluded people who had been in the job for less
than two years. We also excluded executives
and Urs Peyer. Previous rankings were published
conceived by Morten T. Hansen, Herminia Ibarra,
governance (ESG) research and analytics that
works primarily with financial institutions and
in inflation-adjusted U.S. dollars.
We then ranked each CEO—from 1 (best)
asset managers, and with CSRHub, which collects,
industry-adjusted returns were unavailable.)
in HBR in 2010, 2013, 2014, 2015, and 2016, but
who had been convicted of a crime or arrested.
to 898 (worst)—on each financial metric and
the methodology was updated in 2015.
All told, we ended up with 898 CEOs from 887
averaged the three rankings to obtain an overall
We then calculated three metrics for each CEO’s
aggregates, and normalizes ESG data from nine
Publication No. 0017-8012 Harvard Business School Publishing Corp. THE CEOS
60 Harvard Way, Boston, MA 02163 BEST- PERFORMING IN THE WORLD 2017
ISSUE FREQUENCY Bimonthly President and Fellows of Harvard College BY DANIEL MCGINN ore than 15 years ago the management performance measures over a chief executive’s en- between physical stores and online shopping, and its company’s massive Web Services division generates What Everyone Gets Wrong
About Change Management
writer Jim Collins introduced the flywheel
Poor execution is only part
“proximity sourcing” system, under which more than
its own solar and wind energy. And in the past two
tire tenure—numbers that often hold steady. We con-
years Amazon has hired several seasoned sustain-
half of production takes place close to home. This al-
tinue to view the ranking as a work in progress and
as a metaphor for the enduring power of
strong business leadership. A company
of the problem.
NUMBER OF ISSUES PUBLISHED Cambridge, MA 02138 M night, he wrote in his 2001 book of that to look for ways to improve the methodology—but lows it to keep inventories low and jump on trends to ability executives, creating optimism about changes JEAN-LOUIS BARSOUX
get new merchandise into stores quickly.
doesn’t shift from “good to great” over-
this year we made no changes to our measurement
BY N. ANAND AND
likely to come.
Although all investors of course pay close at -
Measured on financial returns alone, Isla comes in
system, which accounts in part for the lack of big sur-
name. Rather, it achieves excellence by “relentlessly
18th in our ranking; his company’s performance on
prises. (For more on our methodology, see “How We
tention to financial performance, there’s evidence
environmental, social, and governance (ESG) factors,
Calculated the Rankings,” above.)
pushing a giant heavy flywheel in one direction, turn
that many are beginning to watch ESG measures
This year’s top performer—his first time in that
carefully, too. Earlier this year Amir Amel-Zadeh of
which count for 20% of a leader’s score, propelled
upon turn, building momentum until a point of break-
through, and beyond.” And once that flywheel starts
Oxford University’s Saïd Business School and George
him to the top spot. ESG-rating firms praise Inditex’s
spot—is Pablo Isla of Inditex, the parent of the re-
tail fashion chains Zara, Pull&Bear, Massimo Dutti,
Serafeim of Harvard Business School published the
transparency in managing, monitoring, and auditing
spinning, Collins said, it tends to keep going.
The power of momentum is evident in our 2017
ANNUALLY 6 PUBLISHER Joshua Macht ranking of the world’s best-performing CEOs, a list Bershka, Stradivarius, Oysho, and Uterqüe and of its supply chain. The company encourages consumers results of a survey of 413 investment executives,
whose firms collectively manage $31 trillion in as-
the housewares retailer Zara Home. Since becom-
to bring worn-out clothing to its stores for recycling
sets. Half reported using ESG information because
that is remarkably consistent with last year’s tally.
ing CEO, in 2005, Isla has led Inditex on a global ex-
(in Spain it runs an at-home-pickup recycling pro -
pansion during which the company has opened, on
gram), and the Join Life brand of Zara, its largest
Two of this year’s top three CEOs were among the top
they believe it is material to investment performance,
and nearly half said they believe that a company with
three leaders in 2016, and 16 of the top 25 were in the
average, one store a day. That growth has increased
chain, is produced using recycled fibers and with
top quartile. Seventy-two of last year’s 100 leaders are
its market value sevenfold and made it Spain’s most
a high ESG score is a less risky investment. Today
careful attention to the consumption of water and
repeats, and 23 are appearing for the fourth straight
other resources.
money managers most frequently use ESG scores as
valuable company. Colleagues describe Isla’s man-
year. Of the 28 CEOs who fell off the list after last year,
a negative screen—they decline to invest in compa-
If we judged CEOs solely on the basis of finan-
agement style as humble and at times almost shy.
nies that have very low scores—but the managers sur-
Although he spends much of his time traveling to
11 retired from their companies. (Most of the rest, in-
cial performance—as we did prior to 2015—the
ing to avoid the limelight. At headquarters he prefers
off because of a significant decline in stock price.) On
Bezos, who topped the list in 2014 and has been the
ANNUAL SUBSCRIPTION PRICE 60 Harvard Way, Boston, MA 02163 cluding the CEOs of Heineken and Vodafone, dropped visit stores, he rarely attends store openings, choos- top-ranked leader would be Amazon’s founder, Jeff veyed said they expect that more investors will seek HERITAGE IMAGES/GETTY IMAGES
high-scoring companies over time and will use the
best financial performer in every subsequent year.
scores to urge companies to do better. “Overall, the
management by walking around over holding formal
average, these 100 CEOs generated a 2,507% return on
evidence in our sample suggests that the use of ESG
stock (adjusted for exchange-rate effects) during a 17-
meetings—part of his attempt to maintain an entre-
Since 2015, when ESG ratings became a factor in our
year tenure, for a 21% average annual return.
ranking, Bezos has climbed from #87 to #76 to #71.
information is driven primarily by financial rather
preneurial, small-company culture even as the firm
than ethical motives,” the researchers write.
has grown very large.
To be sure, Amazon’s ESG ratings remain low: This
There are reasons for this consistency. Unlike
The CEOs listed in the following pages deserve
year 88% of global companies scored higher on ESG
Among apparel retailers, Inditex stands out for two
rankings that are based on subjective evaluations
measures. But those ratings are improving. The
praise for excelling in both arenas.
things: Its success in helping consumers easily migrate
or short-term metrics, our list relies on objective
$99, $109 (U.S.); $128, $139 (Canada and EDITOR Adi Ignatius 66 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017 NOVEMBER–DECEMBER 2017 HARVARD BUSINESS REVIEW 67 78 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017 NOVEMBER–DECEMBER 2017 HARVARD BUSINESS REVIEW 79
Mexico); $165 (international) 60 Harvard Way, Boston, MA 02163
GENERAL BUSINESS OFFICE MANAGING EDITOR Amy Bernstein
60 Harvard Way, Boston, MA 02163; 60 Harvard Way, Boston, MA 02163
Middlesex County THE BEST-PERFORMING WHAT EVERYONE GETS
CEOS IN THE WORLD WRONG ABOUT CHANGE
BONDHOLDERS, MORTGAGEES, OR OTHER SECURITY HOLDERS None page 66 MANAGEMENT
The purpose, function, and nonprofit status of this organization and the exempt status N. Anand and Jean-Louis Barsoux
for federal income tax purposes has not changed during the preceding 12 months. More than 15 years ago Jim Collins, page 78
ISSUE DATE FOR THE DATA BELOW the author of the management best
September 1, 2017 (filed and subject to audit) seller Good to Great, introduced Corporate transformations
AVERAGE NUMBER OF COPIES FOR EACH ISSUE the flywheel as a metaphor for still have a miserable success
DURING THE PRECEDING 12 MONTHS the enduring power of strong rate: About three-quarters of
Total number of copies (net press run) . . . . . . . . . . . . . . . . . . . . . . 376,194 business leadership. A company change efforts either fail to
Paid and/or requested circulation: achieves excellence, he wrote, by deliver the anticipated benefits
Paid/requested outside-county subscriptions stated on Form 3541 . . .152,491 “relentlessly pushing a giant heavy or are abandoned entirely. And
Paid in-county subscriptions stated on Form 3541 . . . . . . . . . . . . . . . . 0 flywheel in one direction, turn upon because flawed implementation
Sales through dealers and carriers, street vendors, counter sales, turn, building momentum until a is most often blamed for such
and other non-USPS paid distribution . . . . . . . . . . . . . . . . . . . 199,287 point of breakthrough.” The power failures, organizations have
Other classes mailed through USPS. . . . . . . . . . . . . . . . . . . . . . . . . 0 of momentum is evident in HBR’s focused on improving execution.
Total paid and/or requested circulation . . . . . . . . . . . . . . . . . . . . . .351,778 2017 ranking of the world’s best- But poor execution is only part
performing CEOs—the 100 leaders of the problem; the authors’
Free distribution by mail: who have delivered top results on four-year study of 62 corporate
Outside-county as stated on Form 3541 . . . . . . . . . . . . . . . . . . . . . . 0 both financial and ESG measures transformations suggests that
In-county as stated on Form 3541 . . . . . . . . . . . . . . . . . . . . . . . . . . 0 over their entire tenures, which misdiagnosis is equally to blame.
Other classes mailed through USPS. . . . . . . . . . . . . . . . . . . . . . 3,050 average 17 years. Before worrying about how to
Free distribution outside the mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Heading this year’s list—his first change, they write, executive
Total free distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,050 time in that spot—is Pablo Isla of teams need to figure out what to
Inditex, the parent of several retail change—in particular, what to
Total distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,828 fashion chains including Zara and
Copies not distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,365 Pull&Bear. In an accompanying change first. They can do this by
fully understanding three things:
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376,194 interview with HBR senior editor the catalyst for transformation,
Percent paid and/or requested circulation. . . . . . . . . . . . . . . . . . . . .99.14% Daniel McGinn, Isla discusses some the organization’s underlying quest
NUMBER OF COPIES OF SINGLE ISSUE PUBLISHED NEAREST TO FILING DATE of the factors—a flat structure and (is it global presence, customer
Total number of copies (net press run) . . . . . . . . . . . . . . . . . . . . . . 386,128 an informal management style; focus, nimbleness, innovation, or
Paid and/or requested circulation: “proximity sourcing,” or production sustainability?), and the leadership
Paid/requested outside-county subscriptions stated on Form 3541 . . 155,000 close to home; and a continual capabilities needed to see it
Paid in-county subscriptions stated on Form 3541 . . . . . . . . . . . . . . . . 0 focus on sustainability—that have through.
Sales through dealers and carriers, street vendors, counter sales, propelled the company’s success. J.C. Penney, Norske Skog, Acer,
and other non-USPS paid distribution . . . . . . . . . . . . . . . . . . . 205,061 HBR Reprint R1706C and other classic cases illustrate
Other classes mailed through USPS. . . . . . . . . . . . . . . . . . . . . . . . . 0 the authors’ points, and the
Total paid and/or requested circulation . . . . . . . . . . . . . . . . . . . . . 360,061 article includes a “quest audit”
to help companies identify their
Free distribution by mail: transformation priorities.
Outside-county as stated on Form 3541 . . . . . . . . . . . . . . . . . . . . . . 0 HBR Reprint R1706D
In-county as stated on Form 3541 . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Other classes mailed through USPS . . . . . . . . . . . . . . . . . . . . . . 3,740
Free distribution outside the mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Total free distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,740
Total distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,801
Copies not distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,327
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .386,128
Percent paid and/or requested circulation. . . . . . . . . . . . . . . . . . . . 98.97%
I certify that all information furnished on this form is true and complete.
Edward Crowley, GENERAL MANAGER
168 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017