 "The curious case of Bezos's low rank on list of top CEOs")
A new yardstick used by the Harvard Business Review (HBR) this year has seen major reorganisation on its list of ‘Best-performing CEOs in the World’. Amazon founder and chief executive Jeff Bezos, despite being the best performer by financial metrics, has slipped to the 87th position in the overall rankings, thanks to the environmental, social, and governance (ESG) performance criterion introduced for companies by HBR.
Bezos, who had topped the list in 2014, has been replaced by Danish drug maker Novo Nordisk’s Lars Rabien Sørensen. The HBR report accompanying the list acknowledges: “On purely financial metrics, Amazon’s Jeff Bezos leads all other CEOs — just as he did last year. But Amazon’s relatively poor ESG score drags Bezos down to 87 th overall. Sørensen finished sixth in overall financial performance; that, combined with a relatively high ESG rating, earned him this year’s top slot.”
This year, rather than focusing only on financial parameters — total shareholder returns and the change in a company’s market capitalisation since its CEO took over — HBR also looked at companies’ ESG performance under their current chiefs. To calculate the final ranking, HBR combined the overall financial ranking and ESG ranking, weighed at 80 per cent and 20 per cent, respectively.
But if the weight of the ESG ranking was only 20 per cent, how did Bezos’s overall ranking slip to as low as 87 th , given his financial ranking was first? Also, where do other top financial performers stand on the overall list? Business Standard looks at the numbers HBR considered while compiling the list.
Financial score
Under Bezos, Amazon’s country-adjusted total shareholder returns (TSR) stood at 21,153 per cent (as of April 30, 2015); the company’s country-adjusted TSR ranking was second. With an industry-adjusted TSR of 20,747 per cent, the company stood third in the sample on this count. In terms of value, Amazon’s market capitalisation under Bezos increased by $198 billion, the sixth-highest change for a CEO in the sample of 907 CEOs from 896 companies (some companies have co-CEOs). Overall, Amazon’s financial ranking, an aggregate of country-adjusted TSR, industry-adjusted TSR and market cap change, was the best in the sample.
Of the CEOs who made it to the top 100, the second-best financial performance was that of Huateng ‘Pony’ Ma, founder and CEO of Tencent, a Hong Kong-based information technology company. Tencent’s country-adjusted TSR stood at 19,934 per cent and industry-adjusted TSR at 20,026 per cent (ranked fourth on both counts). The company’s market cap under its CEO rose by $195 billion, the seventh-steepest increase among all companies in the sample. But Ma’s overall ranking in the HBR list was 45 th.
Among other companies ranked highly on the financial parameters were US-based health care company Gilead Sciences’ John Martin (third), Brazilian financial services company Itaú Unibanco’s Roberto Egydio Setubal (fourth) and US-based financial manager BlackRock’s Laurence Douglas Fink (fifth). In the overall rankings, however, Martin, Setubal and Fink stood 42 nd , 24 th and 25 th , respectively.
Companies’ ESG data, a deciding factor in this year’s HBR list of top 100 CEOs, were sourced from Sustainalytics, a provider of environmental, social, and governance research and analytics. “Sustainalytics, which works primarily with financial institutions and asset managers, rates firms’ ESG performance on a scale of 0-100. Using the Sustainalytics data, we ordered the 907 CEOs from best to worst ESG scores to arrive at their ESG ranking,” HBR said in its report.
Amazon’s ESG score was rather low, at 48.68 (ranked 828 th among the 896 companies in the sample), dragging Bezos down to 87 th in the overall rankings. The ESG performance of many other top financial scorers, too, was quite poor. Huateng Ma’s Tencent, for example, scored 55.91 and was ranked 630th. John Martin’s Gilead scored 57.15, Roberto Egydio Setubal’s Itaú Unibanco 61.94 and Laurence Douglas Fink’s BlackRock 61.30 (ranked 600 th , 460 th and 483 rd , respectively).
Among the companies whose CEOs made it to top 100 on the overall list, the best performers on the ESG parameter were Novo Nordisk (ranked 15 th , with a score of 82.45), German consumer goods company Henkel (18th , with a score of 81.81), Swedish company Atlas Copco (19th, with a score of 81.59), US-based retailer L’Oréal (29th , with a score of 80.17), and German automaker BMW (30th, with a score of 80.16).
While Novo Nordisk’s Lars Rabien Sørensen stood first in the overall rankings, Henkel’s Kasper Rorsted was ranked 18 th , Atlas’s Ronnie Leten was 31st , L’Oréal’s Jean-Paul Agon 55th, and BMW’s Norbert Reithofer 30th.
Bezos, who had topped the list in 2014, has been replaced by Danish drug maker Novo Nordisk’s Lars Rabien Sørensen. The HBR report accompanying the list acknowledges: “On purely financial metrics, Amazon’s Jeff Bezos leads all other CEOs — just as he did last year. But Amazon’s relatively poor ESG score drags Bezos down to 87 th overall. Sørensen finished sixth in overall financial performance; that, combined with a relatively high ESG rating, earned him this year’s top slot.”
This year, rather than focusing only on financial parameters — total shareholder returns and the change in a company’s market capitalisation since its CEO took over — HBR also looked at companies’ ESG performance under their current chiefs. To calculate the final ranking, HBR combined the overall financial ranking and ESG ranking, weighed at 80 per cent and 20 per cent, respectively.
But if the weight of the ESG ranking was only 20 per cent, how did Bezos’s overall ranking slip to as low as 87 th , given his financial ranking was first? Also, where do other top financial performers stand on the overall list? Business Standard looks at the numbers HBR considered while compiling the list.
Financial score
Under Bezos, Amazon’s country-adjusted total shareholder returns (TSR) stood at 21,153 per cent (as of April 30, 2015); the company’s country-adjusted TSR ranking was second. With an industry-adjusted TSR of 20,747 per cent, the company stood third in the sample on this count. In terms of value, Amazon’s market capitalisation under Bezos increased by $198 billion, the sixth-highest change for a CEO in the sample of 907 CEOs from 896 companies (some companies have co-CEOs). Overall, Amazon’s financial ranking, an aggregate of country-adjusted TSR, industry-adjusted TSR and market cap change, was the best in the sample.
Of the CEOs who made it to the top 100, the second-best financial performance was that of Huateng ‘Pony’ Ma, founder and CEO of Tencent, a Hong Kong-based information technology company. Tencent’s country-adjusted TSR stood at 19,934 per cent and industry-adjusted TSR at 20,026 per cent (ranked fourth on both counts). The company’s market cap under its CEO rose by $195 billion, the seventh-steepest increase among all companies in the sample. But Ma’s overall ranking in the HBR list was 45 th.
Among other companies ranked highly on the financial parameters were US-based health care company Gilead Sciences’ John Martin (third), Brazilian financial services company Itaú Unibanco’s Roberto Egydio Setubal (fourth) and US-based financial manager BlackRock’s Laurence Douglas Fink (fifth). In the overall rankings, however, Martin, Setubal and Fink stood 42 nd , 24 th and 25 th , respectively.
Companies’ ESG data, a deciding factor in this year’s HBR list of top 100 CEOs, were sourced from Sustainalytics, a provider of environmental, social, and governance research and analytics. “Sustainalytics, which works primarily with financial institutions and asset managers, rates firms’ ESG performance on a scale of 0-100. Using the Sustainalytics data, we ordered the 907 CEOs from best to worst ESG scores to arrive at their ESG ranking,” HBR said in its report.
Amazon’s ESG score was rather low, at 48.68 (ranked 828 th among the 896 companies in the sample), dragging Bezos down to 87 th in the overall rankings. The ESG performance of many other top financial scorers, too, was quite poor. Huateng Ma’s Tencent, for example, scored 55.91 and was ranked 630th. John Martin’s Gilead scored 57.15, Roberto Egydio Setubal’s Itaú Unibanco 61.94 and Laurence Douglas Fink’s BlackRock 61.30 (ranked 600 th , 460 th and 483 rd , respectively).
Among the companies whose CEOs made it to top 100 on the overall list, the best performers on the ESG parameter were Novo Nordisk (ranked 15 th , with a score of 82.45), German consumer goods company Henkel (18th , with a score of 81.81), Swedish company Atlas Copco (19th, with a score of 81.59), US-based retailer L’Oréal (29th , with a score of 80.17), and German automaker BMW (30th, with a score of 80.16).
While Novo Nordisk’s Lars Rabien Sørensen stood first in the overall rankings, Henkel’s Kasper Rorsted was ranked 18 th , Atlas’s Ronnie Leten was 31st , L’Oréal’s Jean-Paul Agon 55th, and BMW’s Norbert Reithofer 30th.