Chief Executive Magazine’s First Annual Ranking of the CEO Wealth Creators, and Destroyers, in the S&P 500
Chief Executive magazine in partnership with Great Numbers! and the Applied Finance Group, has just published its first
annual ranking of wealth creation by the S&P 500 CEOs, based on their last 3 years of reported results.
The ranking is important because creating wealth for a company’s owners is what CEOs and their operating executives are paid
to do. But measuring their performance with accounting measures is misleading, as an example in the article shows.
Instead, CEOs should be running their companies with the same wealth-creation measures that professional and institutional
investors use. These investors want to know how good a company is at making money in excess of its capital costs, without accounting distortions, and whether the company is creating truly valuable assets.
Background: To portray the relative wealth-creation abilities of S&P 500 companies, Chief Executive invited Drew Morris,
CEO of Great Numbers! LLC, a NJ-based results-improvement consulting and training company, to create the ranking in partnership with the Applied Finance Group (AFG), an independent equity-research advisory firm
specializing in performance and valuation measurement.
The Chief Executive article:
- Describes AFG’s wealth-creation ranking method.
- Ranks the wealth-creation performance of the S&P 500 companies whose CEOs have been in their roles for 3 years or
longer (335 companies were ranked).
- Profiles three of the best and three of the worst performers, and tells how they got there. The three worst list
includes a surprise—a company that many think highly of.
- Tells how a company’s executives can improve their wealth-creation score.
As Chief Executive put it in their introduction, “Our intent is to advance the art, science and practice of creating wealth
for a company’s owners and the associated results-creation skills of its executive team.” Who wouldn’t welcome a little more wealth creation right now?
You’ll find the article in Chief Executive’s November/December 2008 issue (pages 28-34 in the print edition) and online here.
=== Questions and Answers ===
Q. Why did you create a new wealth-creation ranking system instead of just using Total Shareholder Return (TSR)?
A. AFG’s wealth-creation ranking system is not as susceptible to the whims of the stock market as TSR. TSR is the stock-price
change over a given period plus reinvested dividends. Being “in fashion” can raise the share price of a stock beyond what it would otherwise be (the dot-coms, and certain investment banks in 2006 come to mind). When
the sector falls out of fashion, it can cause the stock price to crash. Only one of the four component measures AFG used to create their ranking depends on the stock price, so it’s arguably a less-volatile measure
of wealth-creation ability.
Q. Given the recent market turmoil, are the past 3 year’s results even a relevant basis for a ranking?
A. The end of the ranking period was August 2008 (pre-meltdown). While much about the companies has changed since then, the
rankings indicate the companies’ fundamental abilities to create economic wealth during that time--the strength of their results muscles if you will. That relative strength or lack thereof, remains.
About Great Numbers!
Great Numbers! is a results-improvement consulting and training company focused on helping executives find the best ways to
get their numbers up, using the techniques and analysis tools we’ve pioneered. Some of these were described in a two-part series, Leading Your Business to Maximum Results, published in Chief Executive magazine in their Jan/Feb. and March 2008 issues. A PDF version of that article can be found here.