When a company makes a strong showing in the financial
markets, chances are that it’s the result of a
decision made several years ago, not one based on last
quarter’s numbers. The best executive teams in
some of the bedrock U.S. industries understand this dynamic,
and they excel at helping investors grasp it too. We spoke with
several of the top CEOs on Institutional
Investor’s 2017 All-America Executive Team to
learn how they think about shareholder value.
Union Pacific Corp., founded in 1862, is one of the oldest
companies in the U.S.; among the few railroad operators with a
network that stretches from coast to coast, it also signals the
health of the rail system. In the new world of driverless
long-haul trucks, drone deliveries, and Hyperloop, Lance
Fritz’s role as chair and CEO of Union Pacific may
seem like a throwback to a bygone era. But in the first three
quarters of 2016, the company returned some $3.6 billion to
shareholders by way of dividends and stock buybacks, Fritz
tells Institutional Investor.
The trains of today are cleaner, greener, and a little
faster, making long-distance travel more efficient. Union
Pacific started investing in more-sustainable trains several
years ago, a move that has led to cost savings through better
technology and lower fuel consumption. Although commodities
have slumped in recent years, they’re starting to
show signs of life, a trend that could help to offset a secular
decline in demand for new rail cars.
Union Pacific is focused on operating an efficient rail
network, and its dividend strategy adds another layer of
certainty for investors during cyclical lulls, Fritz contends.
"Our financial team is integrated within the fabric of the
company, ensuring new business is reinvestable and capital
investments generate an attractive return," he says. "This
discipline creates value for our shareholders and delivers
significant returns." As of November 11, Union
Pacific’s stock was up just over 18 percent
year-to-date, closing at $96.88.
Ronald Mittelstaedt, who has served as chief executive and a
director of Waste Connections since the sanitation services
provider launched in 1997, wins the top CEO spot in the
Business, Education, and Professional Services category.
Mittelstaedt’s long tenure keeps him
philosophical about reactionary markets and finicky
shareholders. "Value creation doesn’t generally
happen by accident; it’s something you have to be
purposeful about over five, ten, 15, 20 years," he says. "You
have to ingrain it in the culture of the company."
For Mittelstaedt, building shareholder value centers on
knowing when to listen to markets and when not to. In his view,
the problem for some companies is that "you have to look at
your overall strategy and determine whether it is a strong
long-term strategy and whether you have the fortitude to stand
by it for several years into the future, even if your peers are
changing their strategies all the time," he explains.
Managers who fixate on short-term pops in performance can
lose control of their playbook, Mittelstaedt adds. "Companies
get too focused on letting the market and investors pick the
strategy," he says. "That’s a function of not
being proactive in terms of deciding on the best direction for
your company and communicating that to investors effectively.
You have to know your business and show your work so
performance expectations are aligned across the
Mittelstaedt’s perspective, which he expresses
not only in business strategy but through quarterly in-person,
one-on-one investor meetings, has made Waste Connections one of
the most reliable performers in the large-cap space. The
company’s stock closed at $73.92 on November 11, a
gain of more than 55 percent for the year.
Union Pacific’s Fritz and Waste
Connections’ Mittelstaedt get at the core of how
executive teams rise to the top of the ranking: They play the
long game, and they aren’t afraid to be
transparent about it.
"Business cycles don’t change month to month,"
says Ronald Epstein, a managing director and senior analyst at
Bank of America Merrill Lynch who covers aerospace and defense.
Lockheed Martin Corp., the Most Honored Company in that
category, laid the groundwork for its leading position eight
years ago by creating a share buyback and dividend strategy
that its peers now copy.
Those benefits to shareholders provide yield during what
might be sleepy business cycles. "When you think about the
sector, the cycles are decades long," Epstein notes. "The 737
was developed in the 1960s." To plan for profitability and
investment performance over the long haul, Epstein says,
aerospace companies must complement shareholder perks such as
buybacks and dividends with growth opportunities like making
new parts to keep their aircraft maintained.
In the end, the strength of a company’s
executive team may be one of the more reliable metrics for
judging a potential investment. At Lockheed Martin and the
other companies on the 2017 All-America Executive Team, CEOs
focus on having a strong mix of current execution and future
"It’s important to be able to tell investors
your story but also to execute on that story," says
David Cote, CEO of industrial conglomerate Honeywell
International, the winning chief executive in the Electrical
Equipment & Multi-Industry category. Building a future for
the company means taking the time to get new products right,
but shareholders also want consistent performance.
"For example, Honeywell’s fluorine products
molecule took ten years to come to market," Cote explains.
"Investors were not going to wait for performance to catch up.
We had to continue to perform while balancing expectations and
delivering results quarter by quarter and year-over-year."
The Most Honored Companies will be honored at an awards dinner, taking place on March 7,
2017, at the Mandarin Oriental in New York.