Chief Among Us

Dec. 21, 2004
The 27th annual IndustryWeek CEO Survey reveals how and why today's industry captains lead the largest manufacturing companies in the world.

What strategies will drive company growth in 1999? What performance indicators are most important in strategic decision-making? What are a CEO's most important job responsibilities? These are just a few of the questions IndustryWeek asked CEOs in its 27th annual survey. This year the survey was expanded to give insight into CEO working habits, what gives CEOs job satisfaction, and what traits and talents enabled them to become CEOs in the first place. This survey-results article is the first of a four-story package designed specifically for IW's CEO readers. Support articles include an in-depth look into the changing nature and influence of corporate boards, a discussion of the issues that will challenge CEO leadership and management skills in 1999, and the annual celebration of IW's CEO of the Year. In this year's CEO Survey, IW heard from CEOs of 78 of the 1,000 largest publicly held manufacturing companies in the world, primarily in the U.S., Europe, and Japan. This worldwide input gave rise to certain regional variation. For instance, while many CEO respondents considered competitive spirit a main contributor to their landing a CEO position, Japanese CEOs rated industry and technical knowledge first and competitive spirit last of five choices. Performance Indicators When it comes to strategic decision-making, the most important performance indicator overall to CEO respondents was profit margins, with 75% noting it as very important. Return on assets (ROA ) was the second key indicator rated very important by 46% of respondents, with stock price, productivity (sales per employee), and sales/revenue performance indicators receiving fewer mentions as very important. Not surprisingly, the fundamentals of the company balance sheet catch the attention of CEOs more than some of the numbers that contribute to it (sales/revenues) or that have a significant emotional input (stock price). "It always has been my view that in the long run stock-market performance of a company reflects how well it really is doing, but in the short run there can be all sorts of divergences between the stock price and company performance, due to either irrationality on the part of investors or shenanigans on the part of management," says Michael K. Evans, professor of economics at Northwestern University's Kellogg School of Management, Evanston, Ill. "Executives should do the best job they can of maximizing the long-term rate of return on invested capital. If they do that, over the long run the stock certainly will reflect that superior performance. But trying to adjust business strategy based on how the stock market performs in the short run will, more times than not, result in a suboptimal long-term performance." In addition to the performance indicators mentioned, economic value added (EVA) -- the ability to show return on capital relative to the cost of capital -- was selected as a very important indicator for decision-making by a number of CEO respondents, as were market share and inventory turns. One note of regional variation: Japanese CEO respondents gave productivity (sales per employee) the most mentions as very important among the five selections; profit margin received the second-highest number of mentions. Growth Drivers When asked to rate the importance of company growth drivers for 1999, 57% of CEO respondents cited new products as very important, the highest percentage among the choices offered, which included new products, growing international sales, growing domestic sales, mergers/acquisitions, and new services tied to new products. Now that downsizing has run its course, many companies are looking to product innovation to maintain and build market share. Often innovative products command premium pricing in the marketplace, thus driving not just growth, but also more profitable growth. The result is an emphasis and added pressure on the R&D department as well as on executives and, in fact, the whole enterprise to generate new products and bring them to market quickly. "Innovation is now a whole-company challenge," says Joe Miller, chief technology officer at Du Pont & Co., Wilmington, Del. "Executive management is much more involved in setting R&D targets and making the selection of what technology areas to pursue, and has more understanding of the enabling competencies of the company and how they can be connected to the future." Expanding international sales was cited as a very important growth driver by 47% of CEO respondents, with Japanese and Europeans even more emphatic than their U.S. counterparts. Of the five growth drivers suggested, European CEOs rated growing domestic sales dead last in terms of mentions as very important. Mergers and acquisitions were selected as very important drivers of new growth by 31% of respondents, but they were much more important to U.S. and European CEOs than to the Japanese, who rated mergers and acquisitions last among important growth drivers. Job Responsibilities When asked to select their most important job responsibilities, CEO respondents gave extremely high marks to increasing shareholder value (79% rated it very important) and establishing and communicating company vision (74% rated it very important). With the emphasis on values rather than organizational structure as the key to corporate success, it is not surprising that developing culture scored so well. "Organizational structure can take you only so far," says George Heilmeier, chairman emeritus of Bellcore, Morristown, N.J. "The name of the game is chemistry between people. The keys are mutual trust and respect. To create that culture, the CEO needs to be open to dialogue and have his people see that the CEO is not sitting in a hierarchical mode with respect to the company. He must demonstrate he is creating an open organization and [that he is] willing to share information and build the free exchange of ideas." Responsibilities rated less highly by the CEO respondents included, in order, maintaining relationships with global customers, developing a successor, and influencing public policy, rated very important by just 5%. "Whatever happened to the CEO as a statesman?" you ask. Overall, the more experienced the CEO respondent, the more likely he was to see influencing public policy as an important job responsibility. Also, influencing public policy was much more important to CEO respondents at Japanese companies than those in the U.S. or Europe, as was maintaining relationships with global customers, which was rated second overall by Japanese respondents in terms of mentions as very important, behind establishing and communicating company vision. And both of these responsibilities were more important to Japanese respondents than increasing shareholder value. On developing a CEO successor, Earnest Deavenport Jr., chairman and CEO of Eastman Chemical Co., Kingsport, Tenn., notes, "A key responsibility of a chairman and CEO of a large enterprise is to ensure a successor to the CEO position and ensure continuation of a strong management team to lead the enterprise into the future. Failure to do this can destroy significant value for shareholders and negate progress made under the current CEO's leadership." Other responsibilities rated very important included building and maintaining a long-term growth strategy, leadership development, measuring officer performance, "giving time and money to major communities where we live and work," and promoting teamwork. Work Habits A 40-hour week? A four-day week? Time to cut the grass? Doesn't seem likely if you are a CEO. According to IW's survey respondents, as CEO you should be prepared to work about 60 hours per week running your company, slightly less in Japan, slightly more in Europe. In fact, the raw data showed roughly one-third of CEO respondents worked 60 hours per week, one-third worked 40 to 60, and one-third worked 60 to 80 hours. Overall a CEO is likely to split his workload 60% in the office, 30% on the road, and 10% at home. Japanese CEO respondents conducted the most business at the office (74%) and the least on the road (15%). Job Satisfaction When it comes to job satisfaction, IW's CEO respondents were quite united in their motivation. Ability to grow an organization was rated very important by 73%, and ability to develop people was next, at 48%. That adds up to leadership in anybody's book. Financial compensation ran a distant third in terms of very important mentions, ahead of holding a position of power and public recognition. "If you grow the organization and the business, then it sustains itself long after you leave," says John Trani, CEO of The Stanley Works, New Britain, Conn. "And if you look at what leaders do, in the end if they leave a legacy, then they've done something, and if they don't then it's just footprints in the sand." Japanese CEO respondents placed a bit more emphasis on public recognition than did American or European CEO respondents. "I believe the survey accurately represents the Japanese CEO," says Takeshi Nagaya, president of Toyota Motor Corporate Services of North America, New York. "For instance, they hold public approval or recognition above financial compensation. However, this is a turning point for Japanese leaders. We may be seeing a new type of CEO in the 21st century. The recent economic turmoil in Asia has proven that the most successful leaders are those who can forecast the future, set [farsighted] goals, have good organizational skills, and, most importantly, demonstrate flexibility in their planning." Other sources of satisfaction rated very important included creating products that contribute to people's lives, establishing organizational culture, driving financial performance, contributing to society, and directing a turnaround. Enablers Running today's sophisticated multibillion-dollar manufacturing organizations requires a variety of skills, learned behaviors, and inborn traits. Regarding specific traits and talents that helped them rise to their CEO positions, IW's respondents placed the most value on a competitive nature (rated very important by 52%), followed by communications skills (44%) and human-relations skills (40%). Technical or industry knowledge also was significant, rated very important by 38% of respondents, with willingness to work receiving support as well. "Unless you are interested in winning the game, then you shouldn't play the game," says Stanley Works' Trani. "I have found that people who are successful in business love to compete. Compete fairly. Compete with a smile. But compete. Win the game, but have a good time doing it. If you are not competitive in the sense of trying to win, then I don't think you will devote the necessary energy to bring your organization to the place, perhaps, that it should be in its industry. I don't think your heart and soul will be in that endeavor unless you have a fairly strong competitive edge." However, Japanese CEO respondents rated technical or industry knowledge as their most significant attribute and competitive nature the least important among the five factors presented, in terms of mentions as very important. Also, willingness to work long hours was cited less frequently as very important by the more experienced CEO respondents (greater than 10 years in the position), as was human-relations skills. Computer Use When asked if they use a computer, 83% of the respondents said "yes." Overall, the most common use for the computer, no surprise here, was e-mail, although European respondents were actually more likely to use it to access internal financial and operational data, which was the second choice overall as the way CEO respondents use their computers. Few respondents use their computers for spreadsheet analysis or word processing, but 15% cited logging on to the Internet as a very important use. Other computer uses rated very important included logging on to the company intranet, checking stock-market performance, keeping up to date with current events on the Internet, managing personal finances, and playing computer games. Service Profile While the overwhelming majority of respondents (81%) have been CEO of just one company, 19% have had multiple CEO assignments, with one respondent a CEO at eight different companies! The average respondent has worked for his company for 22 years and has served as CEO of his current company for six and a half years, but the amount of experience ranged up to 42 years in one CEO assignment. Also, Japanese respondents had 10 years' more experience in their companies than U.S. respondents and seven more than European-company CEOs.

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