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The best CEOs in America 2004

Sure, higher earnings and a rising stock price matter most. But in grading CEOs, investors also care a lot more than they used to about good governance, as our second annual survey reveals.

Sometimes good guys finish first.

That's certainly the case right now with chief executive officers. Investors, having lost billions on Enron Corp., WorldCom, Adelphia Communications Corp., HealthSouth Corp. and other highfliers that tanked following executive-suite shenanigans, still demand solid growth. But they also want to be sure that the CEOs they invest with don't play fast and loose with the rules.

That point was driven home dramatically last year at the epicenter of American capitalism: the New York Stock Exchange. The Big Board's own CEO, Richard Grasso, may not have had his hand in the till like some other corporate malefactors, but he did extend it pretty deep into the exchange's pockets. Grasso's nearly $190 million compensation package outraged not only investors but also the CEOs whose companies are listed on the Big Board and who ultimately paid his salary.

Grasso's hypocrisy appeared, moreover, to be as rich as his remuneration: The NYSE had only recently toughened its own corporate governance requirements for listed companies. The Big Board boss's ignominious ouster, which triggered a housecleaning at 11 Wall Street that saw all but two of the exchange's directors tossed out, was in its way as much a symbol of corporate excess -- and investors' new zero tolerance of it -- as the most Lucullan of former Tyco International CEO Dennis Kozlowski's grand bacchanals.

"Everybody now believes that there were strong governance risk indicators at the companies that have cratered over the past 18 months and that they don't want to be fooled that way again," says shareholder activist Nell Minow, chairman of the Corporate Library, a corporate governance research firm based in Portland, Maine. "People recognize that there's a tie between a failure of oversight and a failure of attention to shareholder value."

To find out which chief executives excel in these difficult times, Institutional Investor asked the people whose money is on the line: portfolio managers and securities analysts. In all, 1,374 professionals at 405 investment firms representing about $4.5 trillion in equity assets responded, offering their candidates for the best CEOs in America in 2003. Our second annual survey lists winners in 62 industry sectors. We also denoted the leading scorers in nine broader business groupings. (Profiles of these CEOs appear on the following pages, and a full list of the winners appears on page 43.)

Interviews with the top CEOs reveal that amid all the scandals that have beset companies, good corporate governance is more critical today than ever. The concern is not mere ethical posturing; it directly affects the bottom line.

"Corporate governance is an excellent indicator of corporate health," veteran Colgate-Palmolive Co. CEO Reuben Mark said in a recent presentation to his board.

Still, for all the growing importance of corporate governance, investors and CEOs remain focused on the bottom line. Strong performance continues to be what counts most in evaluating CEOs. Though institutions look at many criteria, growth in earnings and stock price remain of fundamental importance. But investors also prize the ability of executives to manage mergers, communicate with shareholders, take companies in new directions and foster teamwork.

Investors may admire Mark, 64, for his staunch advocacy of good governance -- he notably declined to stand for reelection to Citigroup's board in April, to protest then-CEO Sanford Weill's apparent lack of a succession plan -- but what they really like about Mark is that in two decades at the helm of Colgate, he has achieved a cumulative return on the company's stock of more than 2,500 percent. That's triple the gain of the Standard & Poor's 500 index.

This year's biggest vote-getter among all CEOs -- and, like Mark, a repeat winner -- is Comcast Corp.'s Brian Roberts, 44. He, too, has steered his company to great success. Comcast founder Ralph Roberts's son has transformed the 40-year-old company from just another competitor in the crowded cable business to the undisputed industry leader; it now has 21 million subscribers and wields immense influence over both television content and the equipment that delivers it.

No less impressive, Roberts has managed Comcast's growth efficiently. His $58 billion acquisition in 2002 of AT&T Broadband, the long-distance carrier's struggling cable operation, has vastly exceeded investors' expectations. "Plain and simple, he's knocked the cover off the ball with this deal," says one dazzled investor in our poll. Comcast's shares surged 39 percent in 2003.

Yet Roberts's success has come despite governance lapses at Comcast. Corporate watchdogs fault Comcast for having created so-called supermajority stock to enable Roberts, who personally owns 1 percent of the company's common stock, to exercise an undilutable 33 percent voting stake. The CEO has also come under fire for letting the husband of his cousin serve as a Comcast director. Another black mark is the arrangement Comcast struck at the time of the AT&T Broadband deal that required a supermajority vote by directors to oust Roberts or Comcast's then-chairman (and former AT&T Corp. CEO) C. Michael Armstrong before 2010.

GovernanceMetrics International, a New York­based firm that provides governance research, awards Comcast just 5.5 out of 10 points on its governance rating scale; 7 is average for the 1,600 companies it covers. Just 18 merit a 10. By contrast, four of the companies -- Colgate, Exxon Mobil Corp., Pfizer and Praxair -- whose CEOs finished first in the nine broad business groups in our poll all earned 10s from GMI. Three other "supersector" leaders beat the average: Cisco Systems (8.5), Wells Fargo & Co. (8) and Dell (7.5).

Once, a CEO with Roberts's stellar results could have shrugged off governance grievances as easily as crank complaints at the annual meeting. But it is symptomatic of the changing mood -- and of Roberts's sense of obligation to his shareholders -- that he takes pains to defend his governance record.

Above all, Roberts says, his interests are aligned with those of all shareholders because the majority of his family's wealth is invested in Comcast stock -- and it will remain so for the foreseeable future. Consequently, he argues, it's very much in his interest to deliver sustained, conservatively achieved shareholder value, regardless of what structure the company deploys to govern itself.

"We've done well for all shareholders," Roberts says emphatically.

Perhaps that's why throughout Comcast's history an overwhelming majority of shareholders have consistently approved steps giving the Roberts family greater voting control than its equity stake. The most recent change -- creating the class-B shares that give Roberts one-third voting power -- actually reduced his family's control below 50 percent for the first time in Comcast's history.

"We have less control today than we did at the outset," says Roberts. "There are a number of quality companies that have multiple voting classes of stock. In this era it puts more of a premium on having an outstanding board and outstanding integrity. Investors don't wait for annual meetings. They vote every day by buying or selling shares."

On a personal note, Roberts confides that "in talking to others, I get the sense that many CEOs seem to be less satisfied with their jobs" in the past year or two. "There are new regulations to comply with, and some CEOs feel that a lot of executive time gets spent on process and not on managing the business."

Indeed, many of Roberts's peers can't help but express a certain irritation with the ongoing efforts by regulators and legislators to impose good corporate governance on CEOs by fiat, the most notable of which was the Sarbanes-Oxley market reform legislation passed by Congress in late 2002. The law created a new oversight body for the accounting industry and banned personal loans from corporations to their executives, among other provisions.

"Sarbanes-Oxley was necessary, a good start," acknowledges Wells Fargo CEO Richard Kovacevich, who had the highest score among financial institutions chiefs. "But to think you can prescribe exactly how to accomplish good governance for all businesses is an idea that only politicians could think of. They devoted a lot of time to the letter of the law that could better have been spent on the spirit."

The banker, who is a member of the audit committees of Cargill's and Target Corp.'s boards, says that he becomes "frustrated spending so much time on things that have more to do with form than substance." Just the same, he philosophically says of the push for governance rules, "If this is what it takes to restore confidence in the marketplace, we have to deal with it."

Praxair's Dennis Reilley, No. 1 among CEOs of Basic Materials companies, estimates that only "about 20 percent of the Sarbanes-Oxley bill represents valuable reform." The other 80 percent, he says, "is awfully bureaucratic and probably a case of regulators wanting the public to think they're doing more good than they are."

CEOs would plainly prefer to police their own precincts. As co-chair of the Business Roundtable's corporate governance committee, Pfizer CEO Henry (Hank) McKinnell, the winner in the Pharmaceuticals category, helped draft a voluntary code of governance best practices. The CEO club recommends, among other things, that directors "maintain an attitude of constructive skepticism" toward management and ensure that a company's financial statements are accurate and understandable.

The 61-year-old McKinnell, who has spent the past 33 years at Pfizer, runs a company that has long taken good corporate governance seriously. Pfizer's compensation committee contained a majority of independent directors many years before that was mandated by Sarbanes-Oxley. To prevent conflicts of interest, the company has for two decades barred its auditing firm from performing consulting work for Pfizer. Enron had no such policy.

Yet McKinnell, in a pattern found throughout our CEO rankings, is esteemed by investors for much more than his stands on governance. Since becoming CEO three years ago, McKinnell has conducted his own industry consolidation, getting Rolaids maker Pfizer to digest first Warner-Lambert and then Pharmacia Corp. He has transformed Pfizer from a global also-ran into a long-term contender with three of the world's ten top-selling drugs.

"We've undergone more change in the past three years than in our previous 150," says McKinnell. Pfizer has surpassed expectations for revenue growth as well as for cost savings.

It's no coincidence that many of our top CEOs had banner years. Repeat winner John Chambers of Cisco Systems played a big part in an 85 percent run-up in his company's shares in 2003 by leading a shift in strategy. United Technologies Corp. chief George David, another repeater, can say that he gave shareholders a 53 percent return. Wells's Kovacevich posted a 26 percent gain in 2003, but what's more impressive is that the bank has produced a 20 percent average annual return over the past ten years.

A few top executives, like McKinnell, scored points for engineering transformational mergers. One was Exxon Mobil's Lee Raymond, who has combined two former rivals into one of the world's most profitable companies.

Investors also applauded CEOs who were able to change strategic direction to exploit opportunities or stem stagnation. Repeat winner Michael Dell, for example, moved briskly into network servers, storage devices and printers when growth slowed in Dell's core PC business. Under Chambers's direction, Cisco redrew its battle plan. The bursting of the tech stock bubble wiped out many customers even as economic woes caused tech spending to fall. Chambers shifted Cisco into production of equipment for bigger, more stable telecommunications carriers that use Internet technology to transmit phone calls along with video and data.

Chambers also draws praise for being willing to deliver bad news. "It is now more important than ever to effectively communicate with shareholders, customers, partners and employees," he says, noting that recent corporate blowups have put a premium on candor.

Investors say that Exxon Mobil's Raymond also deals forthrightly with them. They cite the company's annual analyst day: Raymond and other executives travel from company headquarters in Irving, Texas, to the NYSE to face the Street on its own turf. The session stands out, voters say, for its blunt give-and-take.

Praxair's Reilley proffers this definition of a good session with shareholders: "We point out what's good and bad about our business and financial situation. It's our job to make it obvious for investors. It shouldn't take hours of questioning on their part."

For CEOs of every sort of company, fostering a culture of cooperation and a sense of ownership among workers is critical. As Exxon Mobil's Raymond, who heads an organization of 92,500 employees, points out: "In a company this size, it's through the people around you that you get things done."

Lehman Brothers Holdings CEO Richard Fuld Jr., who was voted tops in the Brokers & Asset Managers sector, notes that more than 30 percent of the firm's shares are owned by its employees -- from security guards to securities traders. "My employees think, act and behave like owners," the Lehman CEO says. "And it's not just that you may own the stock. It's that the guy next to you also owns the stock, and he's not about to let you jump out of line, because that's going to hurt him."

Good corporate governance, says Fuld, must permeate the organization. "If you don't get it right at the top, you don't get it right at all," he contends. "You can have all the regulators and all the board members and all the documentation, but that's not going to stop the bad guys. But I do believe that this focus today has got more people saying, 'When in doubt, do what's right.'"


Age: 44

Year named CEO: 2002*

Number of employees: 66,000

2003 stock performance: +39.1 percent

Annual compensation: $7.7 million**

Stock options: $40.7 million

Roberts: "We have nearly all of the family's wealth in the stock. Shareholder value is the No. 1, ultimate metric that I've judged our success by."

One voter: "I think a lot of investors, myself included, had their doubts about Comcast's acquisition of AT&T Broadband. It was very big and very messy. But he has made it work."

Unlike many CEOs these days, Brian Roberts seems to be enjoying himself. "I'm having a blast," reports the mild-mannered head of Comcast Corp., now the largest cable company in the country.

What gives Roberts, 44, such pleasure is remaking the company his father, Ralph, founded four decades ago. The younger Roberts's biggest coup: acquiring AT&T Broadband, the cable television and high-speed Internet business of the struggling long-distance carrier. The $58 billion November 2002 purchase increased Philadelphia-based Comcast's subscriber total to more than 21 million, giving it enormous influence over television programming and the equipment that brings it into American homes.

Roberts gets high marks for integrating the acquisition. Comcast is delivering the efficiencies it promised from the newly acquired AT&T systems. Cash flow from operations increased 35 percent in the third quarter over the year-earlier period. Comcast has halted customer attrition in the AT&T operations and pared its debt load by $5 billion, to $25 billion, with an additional $2 billion reduction targeted for this year.

Investors have reason to appreciate all this change: The stock rose 39 percent last year, far outpacing the Standard & Poor's 500 index.

Like his bow-tied father, now 83 and chairman of Comcast's executive committee, the lanky, buttoned-down Roberts keeps a low profile and emphasizes teamwork. He compares the giant company to "a law firm with a number of partners -- I may be the managing partner, but everybody gets a vote." More than 30 Comcast execs, for example, were privy to the AT&T negotiations and voted on the deal.

Roberts recently discussed the challenges of being a CEO with Institutional Investor Senior Writer Justin Schack.

Institutional Investor: How hard has it been to be a CEO over the past couple of years?

Roberts: With September 11, Sarbanes-Oxley, the economy and Enron, certainly everything has changed in corporate America in the past 24 months. We're in a new world. In talking with others, I get the sense that many CEOs seem to be less satisfied with their jobs. There are new regulations to comply with, and some CEOs feel that a lot of executive time gets spent on process and not on managing the business. I think we're in a transition period in job definition and job description for boards, stockholders, CEOs and other employees.

How close are we to regaining investor confidence after all the recent scandals?

There's been a perceived and real breach of confidence by some in corporate America that has had lasting effects for all. But the market in general appears to be recognizing that these are isolated incidents, not necessarily symptomatic of a general corporate malaise. And I think there's been a tangible reassessment of practices in corporate America that has been healthy. The pendulum needed to swing back, and it has. If it keeps swinging to the point that we stifle innovation, then the swinging needs to ease up. I hope that we find the right balance without an overreaction.

Do you think the pendulum is swinging too far?

It's hard to generalize. For our company, no. We've always had the majority of our board independent. We've always had a fully independent audit committee. A lot of our philosophies are born out of the fact that we have nearly all of the family's wealth in the stock. Shareholder value is the No. 1, ultimate metric that I've judged our success by.

What qualities do you possess that help you be an effective CEO?

I have tried to model myself after some of my father's most successful traits. One of those is fostering a team environment. Comcast is led by a team of executives, not just one or two individuals, and there's a very collegial style to making decisions. My father is 83 years old and still active as a senior statesman. I'm 44. I'm enthusiastic, energetic. I definitely like being part of the day-to-day action and not just being a coach. There are certain projects I take on myself. But over the years my father has handed the ball off to other people, including me, and said, "Run with the ball and let me coach." I'm blending what I see as the successful mentoring and coaching skills that he has without changing who I am.

Is delegating becoming more important now that the company has become so much larger?

It's very hard for any one person to know what's happening with all 75,000 employees. We've had to blend the financial skills that the founding generation brought with new operating experience in a number of areas. We recruited Steve Burke, our cable president, from ABC and Walt Disney Co. Steve has a tremendous service skill set gained from running theme parks and television stations and starting the Disney stores. Our cable marketing head, Dave Watson, ran our cellular company before we sold it. Dave Juliano, who headed marketing for our cellular division, became head of high-speed Internet. These guys are now taking Comcast to new places. If you walk into Circuit City or Best Buy, you see Comcast all over the place -- high-definition TV, high-speed Internet, digital cable, video on demand. We had none of that three years ago. We are now in 4,500 stores.

Comcast's governance has been criticized for the family's voting control, for lack of board independence and for your being protected from being fired under the terms of the AT&T deal. How do you defend those policies?

I think that we've done well for all shareholders. There are a number of quality companies that have multiple voting classes of stock. In this era it puts more of a premium on having an outstanding board and outstanding integrity. Investors don't wait for annual meetings. They vote every day by buying or selling shares. Structure matters, but I think results, quality management and stability are what investors are looking for today. Also, our family has had voting control of Comcast since the inception of the company. On three separate occasions 99 percent of institutional investors voted to increase the family's percentage vote and ultimately to create a nonvoting class of stock. With the AT&T Broadband acquisition, AT&T asked us to reduce our interest from 86 percent to 33 percent. We were willing to do that, without remuneration, to complete the acquisition. That had never happened in our history. Pre-Sarbanes-Oxley, we also agreed to a corporate charter provision that the Comcast board would be majority independent and would include representatives from the AT&T board. And 99 percent of the AT&T and Comcast shareholders who voted ended up supporting the acquisition.

GEORGE DAVID United Technologies Corp.

Age: 60

Year named CEO: 1994

Number of employees: 200,000

2003 stock performance: +53 percent

Annual compensation (2002): $3.8 million

Stock options: $146 million

David: "We've seen the bubble blow and then a correction. But the underlying productivity trends are still there."

One voter: "He has driven a company that was seen by many as nonexemplary into one that's been quite remarkable."

T rue, some investors gripe that George David could boost United Technology's stock price even more if he'd fatten up its margins. Perhaps, but it's hard to argue with the results of his approach. Since David took charge in 1994, the share price of the Hartford, Connecticut­based capital goods conglomerate has jumped about tenfold, including 2003's 53 percent gain.

Part of the credit goes to a stable portfolio of companies that includes building systems suppliers Otis Elevator Co. and Carrier Corp., aerospace giants Pratt & Whitney and Sikorsky Aircraft Corp. and fuel-cell maker UTC Power. Despite weakness in the commercial aerospace industry, UTC's balanced approach allowed it to grow consolidated operating profits during the first nine months of 2003 to $2.92 billion (on margins of 13 percent), up from $2.83 billion a year earlier. In June, David added more breadth to UTC's holdings by shelling out $1 billion to acquire Chubb, a London-based provider of security and fire protection goods and services.

For David, though, the stock gains during his watch mostly result from the introduction of such Japanese manufacturing techniques as just-in-time inventory management, coupled with constant tinkering with production processes to boost efficiency. "That's most of the increase in shareholder value," he concludes, noting that UTC's productivity has grown 6 percent annually over the past 12 years. Otis Elevator, he says, is churning out twice as many units as before with only 20 percent more employees.

Given the long lead times of the capital goods industry, the economic recovery has yet to be reflected in UTC's order book. But David sees plenty of room for continued productivity increases: "There's another decade or more to go," he says. -- Steven Brull


Age: 54

Year named CEO: 1995

Number of employees: 34,237

2003 stock performance: +85 percent

Annual compensation: $1

Stock options: $214 million

Chambers: "I believe the economic recovery started in the April-May time period. The question is: How long will it last and how strong will it be?"

One voter: "They're diversifying into new markets that should help fuel growth in future years."

C isco CEO John Chambers is understandably wary about the current economic recovery. On March 27, 2000, at the height of the dot-com boom, his networking-equipment maker was the world's most valuable company, with a market cap of $555 billion. Then the bubble burst: By October 8, 2002, Cisco's market cap had dropped 89 percent, to $59 billion, relegating the company to No. 30 in market cap globally.

To his credit, Chambers didn't panic postbubble. He centralized marketing and engineering functions, overhauled and aligned top management with key technologies to communicate better with customers and cut costs, including slashing 8,500 of 48,000 jobs. "We developed multiple plans for each of our [product] segments and leveraged the downturn to realign more than half of our resources to future growth opportunities," he says.

Chambers's main initiative was to go beyond the key markets for routers and switches for businesses and sell hardware and software that allow telecommunications carriers to move voice, video and data over unified networks based on Internet technology. "They're really starting to listen to what their customers are looking for and wanting rather than just trying to push a solution on them," says one investor.

The positive results are beginning to show. Cisco has grown market share in most product categories over the past two years, and Merrill Lynch & Co. forecasts that the company's earnings per share will rise 23.7 percent in Cisco's fiscal 2004 (ending in July) and 16.4 percent in fiscal 2005.

Although investors are not likely any time soon, if ever, to accord Cisco the 120 price-earnings multiple it had at the outset of March 2000, they did reward the company -- and Chambers -- with an 85 percent share price gain in 2003. And Cisco's market cap has climbed back above $165 billion, ranking it 18th in the world. "It is during market transitions, unfortunately usually the tough ones, where you potentially gain or lose market share and future profits," observes Chambers. -- S.B.

REUBEN MARK Colgate-Palmolive Co.

Age: 64

Year named CEO: 1984

Number of employees: 37,700

2003 stock performance: ­4.5 percent

Annual compensation: $4.87 million

Stock options: $155.8 million

Mark: "Corporate governance is an excellent indicator of corporate health."

One voter: "Colgate excels not just in quantitative performance. There's also a strong qualitative element, instilled by the leadership of Reuben Mark."

C olgate-Palmolive had a rousing third quarter, setting a sales record of $2.5 billion and increasing its net income for the 30th consecutive quarter. The toothpaste and soap maker's gross profit margin rose 30 basis points year over year, to 55 percent, and is on its way to 61 percent by 2008, promises chairman and CEO Reuben Mark. Investors have good reason to believe him: Colgate shares, bolstered by consistent improvements in financial performance, have returned more than 2,500 percent -- three times the S&P 500 index's gains -- during Mark's 20 years at the helm.

Mark, who avoids publicity (he turned down Institutional Investor 's interview request), is known as the quintessential straight shooter. In April he declined to stand for reelection to Citigroup's board, after a reportedly stormy meeting in which he blasted the huge bank and its powerful chairman, Sanford Weill, for not having an adequate succession plan in place. (In July, Weill anointed longtime lieutenant Charles Prince as Citi's new CEO.) Mark, characteristically, would not discuss the issue afterward.

"It's just like Reuben to let the action speak for itself," says one Colgate director, who spoke to II on condition of anonymity. "That's the way he lives his life; that's the way he runs Colgate. The company, its products, its people and its record speak for themselves. And, I might add, it's the preeminent long-term performance record of our time. Reuben just doesn't get the publicity that Jack Welch did at General Electric."

Hardly an overnight convert to good corporate governance, Mark for years has been the sole insider on a compact board. The eight outside directors, who are paid in stock, meet regularly without him and are free to call on other senior executives for formal presentations or informal updates. Thus the board, says the director, is comfortable with the next generation of Colgate leadership, led by chief operating officer Lois Juliber. Mark, who turns 65 this month, hasn't announced his retirement plans and is expected to stay in place for several years. -- Jeffrey Kutler

LEE RAYMOND Exxon Mobil Corp.

Age: 65

Year named CEO: 1993

Number of employees: 92,500

2003 stock performance: +17.3 percent

Annual compensation: $25.8 million

Stock options: $62.9 million

Raymond: "We are the stewards of accountability and people. In a company this size, it's through the people around you that you get things done."

One voter: "The man is a living legend in the oil business."

F or years, Standard Oil Co., John D. Rockefeller's rapacious Gilded Age trust, symbolized unfettered monopoly power. But for its descendant, Exxon Mobil Corp., corporate checks and balances are the rule.

In the early 1970s, Exxon became one of the first companies to appoint a majority of independent directors. For two decades it has had independent audit, compensation and nominating committees. Since joining Exxon in 1963, Lee Raymond has worked in a shareholder-friendly environment that he has encouraged as CEO. To keep management in line he makes sure that directors can put any item on board-meeting agendas.

"A lot of our shareholders have been around for so long that they kind of expect us to be this way," says Raymond. "Shareholders over the past couple of years have said that they're glad to see that their confidence in our integrity is exactly as they thought it was."

Raymond is also focused on performance. The CEO has introduced critical capital and cost efficiencies to Exxon, which was plagued like other oil companies by the sharp ups and downs of its cyclical industry. But his legacy will be based largely on the merger that he arrangedfour years ago between Exxon Corp. and Mobil Corp., creating the world's biggest integrated oil company. In Raymond's ten years as CEO, Exxon's stock price has climbed by 445 percent, more than three times the gain of the Standard & Poor's 500 index.

Raymond reached Exxon's mandatory retirement age of 65 last year. But the board extended his chairmanship indefinitely, recognizing that the merger had diverted the company's attention from finding a successor. Still, the CEO has indicated that he will bow out sooner rather than later. Many senior executives were groomed by Raymond, giving him confidence that the company will remain a model of good governance. If there are slipups, Raymond will be watching. After all, he says, "I'm a large shareholder." -- J.S .


Age: 60

Year named CEO: 1993

Number of employees: 139,000

2003 stock performance: +25.6 percent

Annual compensation: $8 million

Stock options: $45.8 million

Kovacevich: "The products we offer are basically commodities. What differentiates us is how we distribute them."

One voter: "It's rare for a large bank to be as sales-oriented and customer-focused as Wells Fargo is. That's driven from the top."

J une 8, 1998, was a career-defining day for Dick Kovacevich. The CEO of the consistently profitable, Minneapolis-based Norwest Corp. triumphantly announced the $34 billion acquisition of San Francisco's venerable Wells Fargo & Co. Overnight the new Wells Fargo became a world-class institution, with assets doubling to $191 billion, but the deal also prompted a 25 percent drop in Norwest shares as investors bet that Kovacevich couldn't make the huge, complicated deal work.

"The market creamed us," he recalls, "because we talked about a three-year conversion and 6 percent expense savings when everybody else doing mergers was promising 12 months and 40 percent savings. None of those came close to their targets, and they chased customers away."

Five years later Wells Fargo has doubled in assets again, to $391 billion, making it the fourth-largest bank in the U.S., with 5,900 offices that Kovacevich, a onetime General Mills marketer, pointedly calls stores. The bank has posted record revenues and profits in each of the past nine quarters. Shareholders have earned a total return of 20 percent annually over the past decade.

Kovacevich's success means that "every large-cap bank deal is now modeled on Norwest-Wells," says an admiring investor.

Kovacevich says his approach is pure common sense. Recalling a 1986 statement he issued shortly after he left Citicorp to become Norwest's chief operating officer, he says: "Taken in totality, financial services is not cyclical. Money never declines; it just moves. If you can keep customers' money as they decide to move it, then you reduce cyclicality."

Kovacevich believes Wells bests the competition by offering multiple services -- from basic checking to brokerage to mortgages -- and by letting customers choose how to interact with the bank, whether at branches or ATMs, by phone or over the Internet. The proof is in the cross-sell ratio: Wells's average household uses 4.3 of its products, more than twice the industry average. "If you satisfy customers in such a way that they'll do more business with you than with the competition," says Kovacevich, "then your financial results will be better than the competition's."

Given Wells's superb financial record and its reputation for good corporate governance, investors didn't begrudge Kovacevich his $7 million bonus (on top of $1 million in salary) a year ago. "Wells has been a great investment for us," says one. "It comes down to Kovacevich's effectiveness as a leader. The people in that company know exactly what the program is and what their goals are." -- J.K.


Age: 61

Year named CEO: 2001

Number of employees: 130,000

2003 stock performance: +15.6 percent

Annual compensation: $5.3 million

Stock options: $18.89 million

McKinnell: "We've undergone more change in the past three years than in our previous 150."

One voter: "He has taken a view about the future of the business and he has acted decisively on it. On top of that, he underpromises results and then overdelivers."

P fizer's Hank McKinnell has wagered $150 billion that bigger works better in the pharmaceuticals industry. His bold bet looks increasingly likely to pay off.

Since taking over as CEO just three years ago, the 33-year Pfizer veteran has successfully integrated Warner-Lambert (a deal initiated by his predecessor, William Steere Jr.) and Pharmacia, turning a onetime also-ran among the biggest pharmaceutical companies into the largest, most diverse drugmaker in the world. In each case, McKinnell has exceeded Wall Street's expectations for cost savings and new revenue opportunities.

"We took advantage of best practices among the three businesses, and we've built a better company," says McKinnell. "We've proved that we can do large acquisitions."

The two blockbuster deals -- Pfizer paid $90 billion in stock for Warner-Lambert in 2000 and $60 billion in stock for Pharmacia last April -- give McKinnell a company with some $45 billion in annual revenues, a $7 billion-plus R&D budget and three of the world's ten top-selling drugs, including the hugely successful Lipitor, which lowers cholesterol levels. Profits for 2003 are projected to hit $1.73 per share, up 18 percent from 2002. A pipeline of some 20 new drugs that McKinnell expects to submit for Food and Drug Administration approval by 2005 gives Pfizer a good shot at maintaining its double-digit earnings growth rate.

McKinnell's aggressive approach to consolidation in the pharmaceuticals industry has won over investors, some of whom were initially skeptical that he could pull it off. Competitor Merck & Co. decided not to pursue big acquisitions. Its shares (also hit by several disappointing drug trials) were down 20 percent last year; Pfizer's were up nearly 16 percent.

"Research is a serendipitous thing, and McKinnell is humble enough to search out different paths to innovation," says a buy-side analyst. The CEO has leveraged Pfizer's formidable marketing machine by licensing drugs from biotechnology firms and other pharmaceuticals companies that it can then sell through its own system.

McKinnell, co-chairman of the Corporate Governance Committee of the Business Roundtable, also wins high marks for running a clean and transparent organization. "He's the standard for business conduct in the industry," says one investor. -- Andrew Osterland


Age: 50

Year named CEO: 2000

Number of employees: 25,000

2003 stock performance: +32.2

Annual compensation: $2.06 million

Stock options: $10.24 million

Reilley: "I used to wonder what all those companies that were doubling earnings every year knew that I didn't know. I now feel a great sense of redemption."

One voter: "He sticks to the financial metrics whether it's an acquisition or any other investment. He won't take short-term dilution to grow the company."

P raxair's laudable performance in a treacherous operating environment is largely attributable to Dennis Reilley's highly disciplined management style.

Since the former chief operating officer of DuPont took the helm in early 2000, Praxair has boosted its profits every quarter. That's no small feat considering that the company's industrial gas, chemicals and surface coatings businesses are highly sensitive to economic cycles. One measure of Reilley's accomplishment: Major European competitors like Air Liquide Group and BOC Group suffered sharp earnings setbacks in 2002, while Praxair reported a 25 percent profit increase despite a 1 percent drop in revenues. "The fact that they could grow earnings at all in times like these is impressive," says one buy-sider.

Reilley did have some help. Praxair's hydrogen production unit and its Asian operations have grown strongly in the past couple of years, helping to offset weakness elsewhere.

But Reilley gets much of the credit for Praxair's profitability. A devotee of General Electric Co.'s Six Sigma program, Reilley tries to "disaggregate" complex problems and then solve each of the component parts. For instance, Praxair always has multiple in-house initiatives under way with the collective aim of saving $100 million in costs per year on a constant volume basis. "They add up," says Reilley.

The CEO has shown admirable flexibility in laying off risk. In China he entered a joint venture with French rival Air Liquide to build a $100 million production facility in Shanghai, rather than take all the risk himself.

Investors have shown their appreciation by driving Praxair shares 100 percent higher since Reilley took the job in March 2000. And with the U.S. economy rebounding, Reilley may get a chance to show what he can do with the wind at his back. -- A.O.


Age: 38

Year named CEO: 1987

Number of employees: 44,300

2003 stock performance: +27.1 percent

Annual compensation: $3.4 million

Stock options: $95 million

Dell: "During the past two years, our industry has grown approximately zero. Our market share during that period increased about 40 percent."

One voter: "He might not be just the best technology CEO but the best CEO period."

Last summer Dell Computer Corp. changed its name to Dell Inc. That might not seem like such a momentous move, but it symbolized CEO and founder Michael Dell's determination to deliver double-digit growth even if he has to move Dell beyond its traditional PC business. Computer sales are doing fine, but the 38-year-old Dell, whose 10.5 percent stake in the company is worth some $9 billion, isn't about to sit back and hope that the trend continues. "We'll probably see a lot more growth from storage area networks" than PCs, Dell tells Institutional Investor .

Notebook and desktop computers contribute the bulk of Dell's revenue, which Merrill Lynch & Co. says is on track to exceed $41 billion in the company's fiscal year ending January 31. That would be a healthy jump of 17 percent over fiscal 2002.

Dell has set a target of $60 billion in sales within three years. Half of that increase is expected to come from servers, storage devices, services and peripheral items.

In 2003, Dell began selling an online music service, LCD TVs, music players and printers. Merrill projects that sales of services and peripherals will grow 22 percent this year, to nearly one quarter of Dell's revenues. The brokerage firm foresees more modest, 16 percent revenue gains for PCs.

"Michael Dell has built a fabulous business model," says one investor, "but it's not really a technology model as much as it is a model for a distribution company." The portfolio manager lauds Dell's approach, pointing out that tech companies of its size often struggle to sustain early growth.

To enter new markets, Dell has partnered with industry leaders such as Cisco Systems, EMC Corp. and Musicmatch. But unlike its closest PC rival, Hewlett-Packard Co., which merged with Compaq Computer Corp. in 2002, Dell expects to continue to grow on its own. "You'll see others go the route that Hewlett-Packard and Compaq have gone, but we'll continue with the organic approach," says Dell. -- S.B.


Institutional Investor 's top CEOs were selected based on the responses of research analysts and portfolio managers at more than 400 money management firms to the following question: Who do you regard as the best CEO in the sector (or sectors) for which you're responsible? We asked the same question of every brokerage firm analyst who received votes in the magazine's annual All-America Research Team rankings. The voting wrapped up in late September 2003.

The best CEOs, by sector and industry

Category Rank Name Company


Chemicals/Commodity 1 William Stavropoulos Dow Chemical Co.

2 Charles Holliday Jr. E.I. DuPont de Nemours

3 Raymond LeBoeuf PPG Industries

HM Jeffrey Lipton Nova Chemicals Corp.*

HM Rajiv Gupta Rohm and Haas Co.

Chemicals/Specialty 1 Dennis Reilley Praxair

2 Allan Schuman Ecolab

3 Richard Rompala Valspar Corp.

HM David Lilley Cytec Industries

HM Barry Perry Engelhard Corp.

Metals & Mining 1 Alain Belda Alcoa

2 Daniel DiMicco Nucor Corp.

3 Thomas Usher United States Steel Corp.

HM Wayne Murdy Newmont Mining Corp.

Paper & Forest Products 1 Steven Rogel Weyerhaeuser Co.

2 Paul Stecko Packaging Corp. of America

3 Patrick Moore Smurfit-Stone Container Corp.

HM John Dillon** International Paper Co.


Aerospace & Defense Electronics 1 George David United Technologies Corp.

2 Nicholas Chabraja General Dynamics

3 Vance Coffman Lockheed Martin Corp.

HM Frank Lanza L-3 Communications Holdings

HM Clayton Jones Rockwell Collins

Airfreight & Surface Transportation 1 Michael Eskew United Parcel Service

2 Peter Rose Expeditors International of Washington

3 Kevin Knight Knight Transportation

HM Russell Gerdin Heartland Express

HM Frederick Smith FedEx Corp.

Business & Professional Services 1 Jeffrey Joerres Manpower

2 Todd Nelson Apollo Group

3 Harold Messmer Jr. Robert Half International

Electrical Equipment & Multi-Industry 1 H. Lawrence Culp Jr. Danaher Corp.

2 Jeffrey Immelt General Electric Co.

3 W. James McNerney Jr. 3M Co.

HM Frederic Poses American Standard Cos.

HM Louis Giuliano ITT Industries

Environmental Services 1 A. Maurice Myers Waste Management

2 James O'Connor Republic Services

3 Ronald Mittelstaedt Waste Connections

HM Mark Miller Stericycle

Machinery 1 W. James Farrell Illinois Tool Works

2 Glen Barton*** Caterpillar

3 Alexander Cutler Eaton Corp.

HM Mark Pigott Paccar

Packaging 1 Richard Wambold Pactiv Corp.

2 R. David Hoover Ball Corp.

3 William Hickey Sealed Air Corp.


Airlines 1 James Parker Southwest AirlinesCo.

2 David Neeleman JetBlue Airways

3 Gordon Bethune Continental Airlines

HM Jerry Atkin SkyWest

HM Leo Mullin† Delta Air Lines

Apparel, Footwear & Textiles 1 Paul Charron Liz Claiborne

2 Timothy Boyle Columbia Sportwear Co.

3 Philip Knight Nike

HM Peter Boneparth Jones Apparel Group

Autos & Auto Parts 1 John Barth Johnson Controls

2 Richard Dauch American Axle & Manufacturing

3 G. Richard Wagoner Jr. General Motors Corp.

HM Robert Rossiter Lear Corp.

Beverages 1 Steven Reinemund PepsiCo

2 Patrick Stokes Anheuser-Busch Cos.

3 Douglas Daft Coca-Cola Co.

HM Frank Weise III Cott††

Cosmetics, Household & Personal Care Products 1 Reuben Mark Colgate-Palmolive Co.

2 Alan Lafley Procter & Gamble Co.

3 Andrea Jung Avon Products

HM James Kilts Gillette Co.

HM Fred Langhammer Estee Lauder Cos.

Food 1 Carlos Gutierrez Kellogg Co.

2 Richard Lenny Hershey Foods Corp.

3 Gregg Engles Dean Foods Co.

HM Stephen Sanger General Mills

HM William Wrigley Jr. William Wrigley Jr. Co.

Gaming & Lodging 1 Gary Loveman Harrah's Entertainment

2 J.W. Marriott Jr. Marriott International

3 J. Terrence Lanni MGM Mirage

HM Frank Fertitta III Station Casinos

HM Barry Sternlicht Starwood Hotels & Resorts Worldwide

Homebuilders & Building Products 1 Stuart Miller Lennar Corp.

2 Laurence Hirsch Centex Corp.

3 Donald Tomnitz D.R. Horton

HM R. Chad Dreier Ryland Group

HM Robert Toll Toll Brothers

Leisure 1 Micky Arison Carnival Corp.

2 Robert Eckert Mattel

3 Jeffrey Bleustein Harley-Davidson

HM Richard Fain Royal Caribbean Cruises

Restaurants 1 Orin Smith Starbucks Corp.

2 Joe Lee Darden Restaurants

3 Ronald McDougall Brinker International

HM Richard Federico P.F. Chang's China Bistro

HM David Novak Yum! Brands

Retailing/Department Stores & Broadlines 1 H. Lee Scott Jr. Wal-Mart Stores

2 Robert Ulrich Target Corp.

3 Terry Lundgren Federated Department Stores

HM James Sinegal Costco Wholesale Corp.

HM R. Lawrence Montgomery Kohl's Corp.

Retailing/Food & Drug Chains 1 David Bernauer Walgreen Co.

2 John Mackey Whole Foods Market

3 Thomas Ryan CVS Corp.

HM Richard Schnieders Sysco Corp.

HM Mary Sammons Rite Aid Corp.

Retailing/Hardlines 1 Robert Tillman Lowe's Cos.

2 Bradbury Anderson Best Buy Co.

3 Steven Temares Bed Bath & Beyond

HM Robert Nardelli Home Depot

HM Ronald Sargent Staples

Retailing/Specialty Stores 1 Lewis Frankfort Coach

2 Scott Edmonds Chico's FAS

3 Elizabeth McLaughlin Hot Topic

HM Leslie Wexner Limited Brands

HM Greg Weaver Pacific Sunwear of California

Tobacco 1 Louis Camilleri Altria Group


Electric Utilities 1 J. Wayne Leonard Entergy Corp.

2 John Rowe Exelon Corp.

3 Thomas Capps Dominion Resources

HM H. Allen Franklin Southern Co.

HM Lewis Hay III FPL Group

Integrated Oil 1 Lee Raymond Exxon Mobil Corp.

2 Claiborne Deming Murphy Oil Corp.

3 James Mulva ConocoPhillips

Natural Gas 1 Murry Gerber Equitable Resources

2 Richard Kinder Kinder Morgan

3 Keith Rattie Questar Corp.

HM Bruce Williamson Dynegy

HM Paula Rosput AGL Resources

Oil & Gas Exploration & Production 1 G. Steven Farris Apache Corp.

2 Mark Papa EOG Resources

3 Bob Simpson XTO Energy

HM J. Larry Nichols Devon Energy Corp.

HM Mark Sexton Evergreen Resources

Oil Services & Equipment 1 James Day Noble Corp.

2 Eugene Isenberg Nabors Industries

3 Michael Wiley Baker Hughes

HM Douglas Rock Smith International

HM J.W. Stewart BJ Services Co.


Banks/Large-Cap 1 Richard Kovacevich Wells Fargo & Co.

2 Kenneth Lewis Bank of America Corp.

3 James Dimon Bank One Corp.

HM George Schaefer Jr. Fifth Third Bancorp.

HM G. Kennedy Thompson Wachovia Corp.

Banks/Midcap 1 John Kanas North Fork Bancorp

2 Wallace Malone Jr. SouthTrust Corp.

3 Charles Koch Charter One Financial

HM Thomas Wu UCBH Holdings

HM William Cooper TCF Financial Corp.

Brokers & Asset Managers 1 Richard Fuld Jr. Lehman Brothers Holdings

2 Henry Paulson Jr. Goldman Sachs Group

3 E. Stanley O'Neal Merrill Lynch & Co.

HM Raymond Mason Legg Mason

Insurance/Life 1 Daniel Amos Aflac

2 J. Barry Griswell Principal Financial Group

3 Robert Benmosche MetLife

HM Arthur Ryan Prudential Financial

HM Jon Boscia Lincoln National

Insurance/Nonlife 1 Maurice Greenberg American International Group

2 Ramani Ayer Hartford Financial Services Group

3 James Stanard RenaissanceRe Holdings

HM Glenn Renwick Progressive Corp.

HM Robert Lipp Travelers Property Casualty Corp.

Mortgage Finance 1 Franklin Raines Fannie Mae

2 Herbert Sandler Golden West Financial Corp.

3 Angelo Mozilo Countrywide Financial Corp.

HM Kerry Killinger Washington Mutual

HM Joseph Ficalora New York Community Bancorp

REITs 1 Edward Linde Boston Properties

2 Milton Cooper Kimco Realty Corp.

3 Christopher Nassetta Host Marriott Corp.

HM John Gates Jr. CenterPoint Properties Trust

HM Thomas August Prentiss Properties Trust

Specialty Finance 1 Kenneth Chenault American Express Co.

2 Richard Fairbank Capital One Financial Corp.

3 Joseph Saunders Providian Financial Corp.

HM Albert Lord SLM Corp.

HM Charles Cawley MBNA Corp.


Biotechnology 1 Kevin Sharer Amgen

2 John Martin Gilead Sciences

3 Arthur Levinson Genentech

HM David Mott MedImmune

Health Care Facilities 1 Jack Bovender Jr. HCA

2 Joseph Vumbacco Health Management Associates

3 Wayne Smith Community Health Systems

HM Alan Miller Universal Health Services

HM James Shelton Triad Hospitals

Health Care Technology & Distribution 1 Robert Walter Cardinal Health

2 R. David Yost AmerisourceBergen Corp.

3 Edwin Crawford Caremark Rx

HM Barrett Toan Express Scripts

HM John Hammergren McKesson Corp.

Managed Care 1 William McGuire UnitedHealth Group

2 Leonard Schaeffer Wellpoint Health Networks

3 Larry Glasscock Anthem

HM John Rowe Aetna

HM Jay Gellert Health Net

Medical Supplies & Devices 1 Arthur Collins Jr. Medtronic

2 John Brown Stryker Corp.

3 James Tobin Boston Scientific Corp.

HM Terry Shepherd St. Jude Medical

HM William Weldon Johnson & Johnson

Pharmaceuticals/Major 1 Henry McKinnell Pfizer

2 Sidney Taurel Eli Lilly and Co.

3 Fred Hassan Schering-Plough Corp.

HM Robert Essner Wyeth

HM Raymond Gilmartin Merck & Co.

Pharmaceuticals/Specialty 1 David Pyott Allergan

2 Bruce Downey Barr Laboratories

3 Howard Solomon Forest Laboratories

HM Scott Tarriff Pharmaceutical Resources


Cable & Satellite 1 Brian Roberts Comcast Corp.

2 Charles Ergen EchoStar Communications Corp.

3 James Robbins Cox Communications

Entertainment 1 Sumner Redstone Viacom

2 Richard Parsons Time Warner

3 Robert Bennett Liberty Media Corp.

Publishing & Advertising Agencies 1 Douglas McCorkindale Gannett Co.

2 John Wren Omnicom Group

3 Kenneth Lowe E.W. Scripps Co.

HM Dennis FitzSimons Tribune Co.

HM Russell Lewis New York Times Co.

Radio & TV Broadcasting 1 L. Lowry Mays Clear Channel Communications

2 Lewis Dickey Jr. Cumulus Media

3 David Field Entercom Communications Corp.

HM Robert Neil Cox Radio

HM A. Jerrold Perenchio Univision Communications


Computer Services & IT Consulting 1 Charles Fote First Data Corp.

2 B. Thomas Golisano Paychex

3 Joe Forehand Accenture

HM Jeff Rich Affiliated Computer Services

HM Leslie Muma Fiserv

Electronics Manufacturing Services 1 Timothy Main Jabil Circuit

2 Eugene Polistuk Celestica

3 Jure Sola Sanmina-SCI Corp.

Imaging Technology 1 Paul Curlander Lexmark International

2 Bruce Chizen Adobe Systems

Internet 1 Margaret Whitman Ebay

2 Terry Semel Yahoo!

3 Barry Diller InterActiveCorp

HM Jeffrey Bezos

IT Hardware 1 Michael Dell Dell

2 Samuel Palmisano International Business Machines Corp.

3 Joseph Tucci EMC Corp.

HM Carleton Fiorina Hewlett-Packard Co.

HM Steven Jobs Apple Computer

Semiconductor Capital Equipment 1 Richard Hill Novellus Systems

2 Kenneth Schroeder KLA-Tencor Corp.

3 James Bagley Lam Research Corp.

HM Robert Akins Cymer

Semiconductors 1 Craig Barrett Intel Corp.

2 John Gifford Maxim Integrated Products

3 Robert Swanson Jr. Linear Technology Corp.

HM Jerald Fishman Analog Devices

HM Thomas Engibous Texas Instruments

Software 1 Steven Ballmer Microsoft Corp.

2 John Thompson Symantec Corp.

3 Lawrence Probst III Electronic Arts

HM Amnon Landan Mercury Interactive Corp.

HM Lawrence Ellison Oracle Corp.


Data Networking & Wireline Equipment 1 John Chambers Cisco Systems

2 Scott Kriens Juniper Networks

3 Mark Smith Adtran

Telecom Equipment/Wireless 1 Irwin Jacobs Qualcomm

Telecom Services/Wireless 1 Timothy Donahue Nextel Communications

2 John Stanton Western Wireless Corp.

3 John Zeglis AT&T Wireless Services

HM John Chapple Nextel Partners

Telecom Services/Wireline 1 Ivan Seidenberg Verizon Communications

2 Edward Whitacre Jr. SBC Communications

3 Scott Ford Alltel Corp.

HM F. Duane Ackerman BellSouth Corp.

HM David Dorman AT&T Corp.

* Based in Calgary, Alberta.

** Stepped down November 1, 2003.

*** Retired as of January 31, 2004.

† Stepped down January 1, 2004.

†† Headquarters are in Toronto, Ontario.

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