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Europe’s best CEOs

These corporate chieftains have delivered solid returns in good times and bad. Consistently top-tier financial performance remains the gold standard for evaluating business leaders, say most investors.

It's a good thing that being a CEO is such a great job, because otherwise it would be an awful one. Imagine having to contend with so many clamorous constituencies whose interests are rarely in harmony: shareholders, customers, employees, executives, board members, investors, suppliers, regulators, politicians and community leaders. And that's not to mention shareholder activists.

It's a wonder CEOs get any work done. Yet, clearly some do. Take the case of Frederick Goodwin of Royal Bank of Scotland Group. Since becoming CEO in 2000, Goodwin, through a combination of acquisitions and organic growth, has transformed the Edinburgh-based retail specialist from a midsize British bank into the fifth-biggest financial services company in the world as measured by market capitalization, with a £50.6 billion ($92 billion) market cap, with significant holdings in the U.S. and growing capital markets ambitions. RBS's share price has doubled over that period. Or consider José Ignacio Sánchez Galán, CEO of Spanish utility Iberdrola. He's managed to amass share in a brutal market by capitalizing on his company's clean, green reputation: It produces fewer carbon dioxide emissions than most of its European rivals, a plus in a world that is groping for ecologically friendly ways to produce power. Iberdrola's earnings have grown at a double-digit clip, while its share price rose 16.5 percent in the last two years.

Goodwin and Sánchez Galán are just two of the corporate chieftains whose achievements earn them recognition as Europe's best CEOs in this year's Institutional Investor ranking, our second. Altogether, leading chief executives were selected in 32 industry sectors by the almost 750 portfolio managers and securities analysts at approximately 250 investment management firms representing a combined $2.8 trillion (E2.3 trillion) in European equity assets and more than $1.7 trillion in European fixed-income assets, as well as by 501 sell-side analysts at 50 brokerage firms who participated in II's annual poll. (Profiles of several of the winning chief executives, including Goodwin and Sánchez Galán, begin below, and a full list of the winners is on page 27.)

What appeals to our voters about Goodwin and Sánchez Galán as well as other top CEOs is their ability to deliver results in good times and bad, to communicate objectives -- and problems -- in a clear and timely manner and to provide prudent leadership. These traits don't always align perfectly with the governance goals of some shareholder activists, a tension that our poll of investors displays in high relief. Indeed, a number of this year's selections provide much-needed perspective on the sometimes overheated issue of corporate governance.

Take the case of W.I. (Liam) O'Mahony, who runs Ireland's CRH, the world's fourth largest building materials supplier. He makes our list for the second year in a row. Yet his company ranks near the bottom third among its competitors on corporate governance, according to Institutional Shareholder Services, the U.S.-based proxy adviser to institutional fund managers. Among other objections, ISS believes CRH doesn't have enough independent directors, a charge O'Mahony rejects. "We absolutely dispute that a majority of our board members are not independent," he tells II with some vehemence. "Every one of our nonexecutive board members brings valuable knowledge to the company and is fiercely independent."

Many investors make a distinction between governance goals and a CEO's long-term performance. "Putting in place a solid corporate governance structure is all well and good," points out Maren Hernando, a portfolio manager at Gesbeta Mees Pierson in Madrid who manages E64 million in European equities. "But whatever hierarchy you've got in place is secondary to reliable and trustworthy returns."

Our winners have delivered these returns, in a particularly trying period for their companies, as Europe's much-predicted recovery has yet to gather a head of steam. O'Mahony's CRH saw pretax profits tumble by almost one fifth in last year's first half because of poor weather and the anemic dollar, yet the company still finished the year with a respectable 3 percent gain -- and a more than respectable 49 percent surge in share price. Marco De Benedetti, top vote-getter among telecommunications bosses, impressed investors with what he didn't do: This bold deal maker flatly declined to go on a manic merger spree, husbanding Telecom Italia Mobile's cash instead. TIM's stock price was up 13 percent over the past 12 months.

One way or another, all of our winning CEOs have had to deal with the stubborn economic downturn. The fortuitous result, however, is that "after three years of cost-cutting, European businesses are more efficient than they have ever been," says Credit Suisse First Boston strategist Nicholas Nelson. "That's going to make for good times and strong earnings as growth in Europe really gets under way in the second half of this year."

Groupe Danone CEO Franck Riboud, winner in the Food Producers category, has pledged to increase the French company's operating margin this year to an unprecedented 12.6 percent by rolling out a single information technology system across 120 countries. "Through the simple fact of having one system and data warehouse for the company," Riboud says, "we are redesigning processes and making Danone more efficient and less wasteful than it has ever been before."

Optimism is beginning to creep into the Continent's boardrooms. Growth in Europe last year was a dismal 0.5 percent, compared with 3.1 percent in the U.S. and 9.1 percent in China. But with Europe's global trading partners registering healthy growth and the imminent prospect of higher U.S. interest rates putting upward pressure on the long-sliding dollar, European exports are reviving.

In May analysts upgraded 1,835 European stocks while downgrading 1,004 -- the best such ratio in 16 years -- and they forecast that European companies' average earnings per share would grow an impressive 15 percent this year. CSFB's Nelson calculates that European companies' free cash flow as a proportion of their market capitalization will hit a record 6 percent this year, compared with just 1.8 percent two years ago. All that handy cash, he suggests, could prompt CEOs to go shopping for acquisitions. Still, as Bernard Arnault of French conglomerate LVMH Moët Hennessy Louis Vuitton, winner in the Luxury Goods class, observes, "the weight of the state in the economy and the lack of flexible rules when it comes to issues like hiring and firing mean that companies will remain cautious when expanding, at least within Europe."

Most of this year's 32 winners -- 17 of them repeaters -- have put together operations that throw off healthy cash flow, yet by and large they're a cautious bunch: They've won over investors in part because they've exercised restraint in pursuing takeovers. "There are no absolutes, but we are always wary when CEOs start talking about major transforming mergers," notes Vinzent Sperling, a portfolio manager at Munich's Activest, which has E13 billion in European equities.

O'Mahony, for instance, aims to double CRH's revenues every five years not through major mergers but rather a combination of organic growth and numerous small, bolt-on acquisitions of family firms. He likes to keep local managers in place, while centralizing administration and IT. CRH's biggest-ever purchase took place last October when O'Mahony paid E693 million for Netherlands-based Cementbouw -- roughly six times the cement maker's prospective earnings for 2004 once synergies are factored in.

Telecom Italia Mobile's De Benedetti might have used his E1.9 billion-plus cash pile to acquire competitors. Instead, this spring the CEO helped to craft an innovative purchasing alliance with T-Mobile of Germany, Orange of France and Telefónica Móviles of Spain. Called FreeMove, the partnership aims to provide standardized international services to all these telecoms' customers and benefit from economies of scale in buying telecoms equipment. FreeMove recently commanded a 10 percent discount from Siemens and Motorola on 6 million wireless handsets. And rather than splurge on acquisitions for Telecom Italia Mobile, De Benedetti returned cash to shareholders through a E2.2 billion dividend distribution in May. He says he's willing to acquire but only if he can get a 30 percent annual return on investment long term.

Danone's Riboud is single-minded but prudent. Since succeeding his father and company founder, Antoine Riboud, in 1996, he has slimmed the group from eight divisions to just three -- dairy products, biscuits and snacks, and beverages. By divesting businesses in which Danone was not the market leader or No. 2, Riboud has transformed it into one of the sector's fastest-growing companies.

"Riboud is the only CEO in the sector who understands the virtue of simplicity when it comes to effectively pushing growth and communicating an easy-to-understand strategy to investors," says Andrea Puccini, a portfolio manager at Milan's Fideuram Capital, which has E30 billion under management. Riboud's actions have boosted Danone's share price by 135 percent over the past eight years.

The boldest of this year's winners may be Goodwin. A former accountant, Goodwin led his bank's spectacular metamorphosis largely through 21 acquisitions, the most audacious of which was the £21 billion takeover of National Westminster Bank on March 6, 2000, the same day he was named CEO (in his previous role as deputy chief executive, Goodwin was one of the deal's two architects, along with former CEO and current chairman George Mathewson). At the time, NatWest was three times the size of RBS. Known as "Fred the Shred" for his ruthless cost-cutting, Goodwin got rid of 18,000 employees within two years, reaping £400 million in annual cost savings. He has achieved a targeted 12 percent average annual return on his acquisitions so far.

In May (after this year's CEOs ballots had been returned), Goodwin shelled out a hefty $10.5 billion, or 15 times prospective earnings, for Cleveland-based Charter One Financial. It wasn't RBS's only U.S. bank acquisition -- Goodwin had already bought Massachusetts-based Medford Bancorp and Commonwealth Bancorp of Pennsylvania, among others -- but it was by far the most expensive. Well aware of his reputation as a serial acquirer, Goodwin joked to analysts in May that Charter One would open up "thousands of new acquisition opportunities" for RBS in the Midwest. He told II in a recent interview that his only criterion for deals was "to make sure they make economic sense," adding that "what we've done makes us very competitive."

Goodwin has plainly dazzled investors, but they worry that although he has minted money with his acquisition strategy so far, Charter One might signify a loss of focus. "The best CEOs can turn into the worst CEOs with one false move," frets one voter. Another insists, however, that RBS is "one of the few banks where you trust the track record."

Trust is more critical than ever for European companies and CEOs. Consider the case of Adecco, the Switzerland-based temporary staffing company whose shares jumped 38 percent in 2003, bolstered by steady increases in profits and solid demand for its services in an uncertain global economy. Investors, who were polled for this survey over several months beginning late last year and ending in March 2004, voted its boss, Jérôme Caille, the top CEO in the Business & Employment Services category. However, in January, in the midst of the balloting, Caille announced that the company's 2003 financial results would be delayed because accountancy Ernst & Young had refused to sign them because of "material weaknesses" in its accounting and control procedures. Adecco's shares lost more than a third of their value in a single day. In early June the company said an outside investigation concluded that previously announced results for the first three quarters of 2003 and all previous years did not need to be revised after all -- and that its full-year 2003 earnings had risen by 26 percent. Still, Adecco's shares remained 24 percent below their early January high (hurt further by a 53 percent drop in first-quarter 2004 profits).

To begin repairing the damage, Caille has had to make -- and endure -- wholesale changes. He spent an estimated E100 million on an investigation of the company's internal accounting controls, led by New York law firm Paul, Weiss, Rifkind, Wharton & Garrison, which uncovered only minor bookkeeping errors; both the CFO and the head of Adecco's North American operations, where many of the supposed problems were said to have occurred, left the company; and chairman John Bowmer announced he would retire after the company's June 29 annual general meeting. At that meeting shareholders approved the company's proposal to replace six of nine board members with prominent outsiders such as Jürgen Dormann, CEO and chairman of Swiss engineering group ABB, and Francis Mer, former French Finance minister.

Investors say they will wait to evaluate the impact of the company's pledge to tighten internal controls and the arrival of new board members. A number of shareholders who voted for Caille in II's polling said they would not have done so following his revelations in January. "If I knew what I know now, I would not have voted for Caille," says one. "If Caille wants to regain credibility, he will have to prove that accounting problems have not lost Adecco customers or materially affected operations -- he's going to have to communicate a whole lot better."

The Adecco example demonstrates just how sensitive -- and complex -- the issue of corporate governance is. CEOs must respond forcefully and immediately to any perceived problem because the cases of Parmalat, Royal Dutch/Shell Group and Royal Ahold have made a lasting impression on investors.

And yet a strong corporate governance code isn't necessarily the most important yardstick investors use to rate CEOs. While acknowledging the need for improved transparency, European CEOs -- including a number of II's winners this year -- complain that complying with a raft of burdensome rules and regulations designed to combat corporate fraud and misrepresentation and thereby restore trust distracts them from running their businesses. "A healthy dose of common sense gets lost when standards are applied out of context," asserts O'Mahony. Many of his fellow European CEOs would readily agree. They find complying with the long reach of the legalistic U.S. Sarbanes-Oxley Act in particular to be a troublesome imposition. As the CRH chief notes, "it's a lot of work. One hopes that all this effort is not just to check boxes."

Nor are CEOs the only ones questioning the methods, if not the aim, of some of the new rules. In an op-ed piece in the Wall Street Journal in late May, New York Stock Exchange CEO John Thain, a former COO and president of Goldman, Sachs & Co., warned that certain of the new American rules were so onerous that foreign companies were avoiding listing in the U.S., putting the dominance of U.S. capital markets at risk. His title: "Sarbanes-Oxley: Is the Price Too High?"

In European corporate circles the feeling is that U.S. regulatory codes, notably Sarbanes-Oxley, are too inflexible to be effective. Passed in 2002, the act requires CEOs to formally sign off on their corporate accounts and gives auditors far greater powers to scrutinize not only companies' books but also their basic financial processes. It applies to all companies, foreign or domestic, listed on U.S. stock exchanges.

"Although we have different corporate governance rules in every European country, they are almost all flexible, comply-or-explain codes rather than inflexible rules that must be obeyed no matter what, as in the U.S.," observes Morris Tabaksblat, retired co-CEO of Anglo-Dutch consumer goods company Unilever. He shepherded the newest such guidelines, the Netherlands' Tabaksblat code, which was completed in March. "Our code, like others in Europe, is based on principles that can be adapted to each company's situation," he says. "What is key is to comply with the spirit of good corporate governance even if for some reason your company does not meet specific standards. Sarbanes-Oxley or the Securities and Exchange Commission's rules are very detailed but not sufficiently broad."

Another of this year's CEO standouts who, like O'Mahony, comes up short by ISS's strict standards is Arnault. He has more than doubled LVMH profits in 15 years and nearly quadrupled its share price. Yet in ISS's corporate governance quotient ranking system, which covers 7,669 companies throughout the world -- 5,369 of them in the U.S. -- LVMH is assigned a quotient of 2.2 compared with other French companies and 1.2 compared with other consumer durables and apparel companies. This means that ISS reckons Arnault's company to do worse on corporate governance than 97.8 percent of all French companies and 98.8 percent of the companies in its sector worldwide.

ISS, whose fairly conventional governance criteria can be said to be broadly in line with the implicit standards of most U.S. regulators, favors independent boards, a single class of shareholders, separation of the posts of chairman and CEO, expensing of share options and cumulative voting at annual general meetings (which can help minority holders win board representation).

But LVMH's board is not independent -- Arnault's father and daughter are among the 18 directors. And the company's dual share structure tilts voting rights toward insiders. (Arnault owns 48 percent of the company and controls 65 percent of the voting rights.) But as the CEO argues in an interview with II, the corporate governance structure of LVMH is appropriate for the type of enterprise it is. "This is a family-owned company, and it does not fit standard parameters of good corporate governance applied to those that are not," declares Arnault. "What is important is that I do not manage the group as something that can give me more power, as so many CEOs with no economic stake do, but as a valued asset. That gives investors real security."

Adds one of those investors, Beatriz Varela Aqui, a portfolio manager at Barclays Bank in Madrid, who oversees E25 million in European equities: "You can't just focus on details of voting and nonvoting shares. What's most important is that overall disclosure is acceptable and that LVMH is an excellent company compared to its peers."

Investors who don't agree can always sell.


W.I. (LIAM) O'MAHONY

CRH

Age: 57

Year named CEO: 2000

Company employees: 54,000

12-month stock performance: +33.6 percent

Compensation: E975,000 ($1.22 million) salary, E350,000 bonus, E313,000 pension and other benefits

Stock options awarded in 2003: 70,000

O'Mahony: "My job gets more complex as the company gets bigger, but it's still about providing leadership and support of the team."

One voter: "It's easy to destroy value with acquisitions. O'Mahony is very disciplined about growing the business."

When W.I. (Liam) O'Mahony joined Dublin-based CRH, right after earning his MBA from Trinity College in 1971, the building and construction materials manufacturer had sales of just E26 million -- 95 percent of which was made within Ireland. In 2003 the company posted revenues of E11.1 billion, with only 8 percent coming from Ireland, making CRH one of the few Irish companies with truly global reach. How did a small cement maker become a multinational giant, delivering a 19 percent average annual return to shareholders along the way? In a word: acquisitions.

"Our natural growth rate is not enough to sustain our overall growth objectives," says O'Mahony, who spent much of his career developing CRH's U.S. business and who worked for CRH in the U.S. for a total of 12 years in two stretches. The company's American growth began with the purchase of a small Utah-based concrete maker in 1978. CRH is now the largest producer of asphalt in the U.S. market. The Americas accounted for 54 percent of 2003 revenues.

CRH periodically undertakes larger deals, such as its E693 million purchase of Netherlands-based Cementbouw last October, but its usual targets are smaller, bolt-on acquisitions. Typically, CRH looks for the management teams of these often-family-owned businesses to stay on and continue running the operations. "We're not fixer-uppers," says O'Mahony.

The piecemeal strategy has allowed successful local businesses to continue to prosper while taking advantage of their parent's centralized administration and information technology functions. It has also helped CRH avoid large mistakes such as that made by Paris-based rival Lafarge, which spent a total of E7.4 billion in 2000 and 2001 to buy U.K. cement maker Blue Circle Industries. Lafarge's shares have fallen 22 percent (after dividends) since the beginning of 2002, compared with a decline of just 7 percent in CRH shares. "CRH has the best management team in the industry," says Michael Harmalink, an analyst at the State of Wisconsin Investment Board, which has internal and outside managers investing roughly $9 billion in European equities.

Not that O'Mahony is without challenges. Bad weather and the weak U.S. dollar contributed to an 18 percent drop in pretax profits for the first half of 2003. However, strong results in Ireland and continental Europe in the second half helped the company post net profit growth of 3 percent for the full year. The stock has returned nearly 49 percent since the beginning of 2003.

With a free cash flow of between E600 million and E700 million, the company will continue to pursue acquisitions -- and given the fragmented nature of the industry in most of CRH's markets, it won't lack for opportunities. European Union expansion will give CRH more exposure to faster-growing markets -- notably, Poland, where it already has significant business. And the acquisition of a 49 percent stake in Portuguese cement maker Secil earlier this year will help CRH expand on the Iberian peninsula.

Like all leaders of multinational companies, O'Mahony has had his hands full complying with new regulations and corporate governance rules adopted across various financial markets. The Combined Code on Corporate Governance for U.K.- and Ireland-listed stocks was revised last year, and CRH (which has an American depositary receipt listing on the Nasdaq exchange) is still working on compliance with the Sarbanes-Oxley Act in the U.S. "One hopes that all this effort is not just to check boxes, but that it improves governance and financial reporting," says O'Mahony. -- Andrew Osterland


BERNARD ARNAULT

LVMH Moët Hennessy Louis Vuitton

Age: 55

Year named CEO: 1989

Company employees: 56,000

12-month stock performance: +32.0 percent

Compensation*: E881,792 ($1.11 million) salary, E936,971 bonuses, E111,719 director's fees

Stock options awarded in 2003: E22.2 million

Arnault: "One of the major advantages of being the largest luxury goods company in the world is having the distribution and marketing muscle to accelerate the growth of smaller, promising brands."

One voter: "Arnault created a new kind of company and saw synergies where others didn't."

Arguably France's greatest business visionary, Bernard Arnault used the fortune he'd amassed running his family's construction business and revitalizing fashion house Christian Dior to launch a controversial 1989 takeover battle for LVMH Moët Hennessy Louis Vuitton. He wrested control from Henry Racamier, whose wife's family founded famed luggage maker Louis Vuitton. Arnault's corporate strategy was simple: Use LVMH's cash flow to acquire other tony brands, then apply all the company's marketing and distribution clout to grow them rapidly. He thus created the world's first luxury goods conglomerate -- selling everything from handbags and perfume to champagne and watches. In 15 years Arnault has boosted LVMH's revenues nearly fivefold, to E12 billion, and more than doubled its profits, to E723 million.

Copycats abound, notably LVMH's much smaller competitor Gucci Group, which is controlled by another French billionaire, François-Henri Pinault. But no one has been able to catch up with Arnault. "If anything, we are less worried about rivals today than we were five years ago," he says. "An unexpected acquisition opportunity can always crop up, at the right price, but we have largely completed assembling our portfolio of brands, and I think it is evident that no one has the scale to be a major competitive threat to LVMH today," says the graduate of Paris's École Polytechnique.

Arnault's acquire-and-promote formula is being applied to 50 luxe labels, including Louis Vuitton, Moët & Chandon champagne, and Hennessy cognac as well as newer additions like Tag Heuer watches and Emilio Pucci fashions. These brands are managed in five business divisions: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and retail stores. "It may seem like a strange mix, but it really works," says Beatriz Varela Aqui, a portfolio manager at Barclays Bank in Madrid who oversees E25 million in European equity investments.

Arnault, who controls 48 percent of LVMH share capital and 65 percent of its voting rights, hasn't stopped mixing it up. Last year his company successfully sued investment bank Morgan Stanley for E30 million in a Paris commercial court over allegedly biased equity research coverage of LVMH. The luxury goods maker charged that Morgan Stanley's negative view was colored by the investment bank's mandate to represent acquisition target Gucci in a takeover battle that pitted Arnault against Gucci executives' preferred alternative, Pinault and his company, Pinault-Printemps-Redoute. (Morgan Stanley has appealed the ruling.) "We think the decision in our favor shows that there is a clear conflict of interest between research and investment banking operations," says Arnault, who believes his suit will help make research more objective. Shareholders can't argue too much with Arnault's success: The stock has jumped 289 percent since he took the helm, compared with the 136 percent gain in France's benchmark CAC 40 index. -- D.L.

*After taxes and social charges; gross compensation is roughly double the amounts shown.


JOSÉ IGNACIOSANCHEZ GALAN

Iberdrola

Age: 53

Year named CEO: 2001

Company employees: 13,400

12-month stock performance: +18.9 percent

Compensation: Undisclosed (E660,000 [$828,762] salary paid to top three executives)

Stock options awarded in 2003: E1.49 million

Sánchez Galán: "The pillar of our strategy is to increase efficiency. We have a very efficient portfolio of power plants. We will be very delighted if competition is enhanced."

One voter: "Iberdrola is the jewel of European utilities. They have a superior portfolio of assets, and they have a very focused strategy."

Utilities traditionally pay consistent dividends to compensate shareholders for modest corporate growth prospects. Spain's Iberdrola offers a dividend, too, but that's where the comparison ends. Thanks to rising standards of living and a booming market in second homes, the country's second-biggest utility has seen local electricity demand increase by 5 percent a year for the past two years and its own recent production grow at an even faster clip. Iberdrola's earnings are increasing at a double-digit pace, and its stock, powered by a series of hefty dividend hikes, has jumped by 16.5 percent over the past two years.

Chief executive José Ignacio Sánchez Galán, who headed Spanish mobile telephone operator Airtel Móvil before it was acquired by Vodafone Group in 2000, aims to take full advantage of the boom with an aggressive expansion. He has embarked on a seven-year, E16.2 billion investment program to more than double the company's electricity generating capacity, to 39,000 megawatts, by 2008 and sustain recent earnings and dividend gains. Three quarters of the new capacity will be built in Spain, with most of the remainder in Mexico, where Iberdrola is the largest private power producer.

The vast majority of the new capacity will come from superefficient combined-cycle gas plants or wind-powered facilities. Unlike many of his rivals, Sánchez Galán sees the Kyoto Protocol on global warming as a competitive advantage. Iberdrola plants produce fewer carbon dioxide emissions than most European electrical utilities, so the company is in a position to benefit when Europe introduces the trading of emission rights next year. Originally a hydroelectric power producer, Iberdrola expects to generate 30 percent of its output from renewable resources by 2007, compared with a European target of 10 percent by 2010. "That gives us a clear, clear advantage," he says.

The one dark cloud on Iberdrola's horizon is consolidation. Speculation about a possible merger between domestic rivals Gas Natural and Endesa has flourished since the March election victory of Spain's Socialists, who favor a smaller roster of utilities. Sánchez Galán refuses to comment on the situation, but some investors worry that consolidation could increase competitive pressure on Iberdrola or tempt the company to do a bad deal. "The basic job of the CEO of Iberdrola is not to screw it up, because it's a gem," says Laurie Fitch, an analyst and fund manager at TIAA-CREF in New York, which owns Iberdola stock. "Restraint is important."

Sánchez Galán, who earned an industrial engineering degree from Madrid's Engineering Technical University, is open to possible acquisitions in Europe, provided they offer synergies with his Spanish production and distribution network. He is particularly interested in Portugal, where Iberdrola operates wind plants and stands to benefit from a liberalization agreement that will create a single Iberian electricity market. He is less keen on financially driven deals in more-distant regions, such as those that Germany's E.on and RWE have done in Britain. "We are an industrial company," he says. -- Tom Buerkle


FREDERICK GOODWIN

Royal Bank of Scotland Group

Age: 45

Year named CEO: 2000

Company employees: 120,900

12-month stock performance: +2.6 percent

Compensation: £898,000 ($1.6 million) salary, £990,000 bonus, £28,000 benefits

Stock options awarded in 2003: £900,000

Goodwin: "It's lethal to set out that you've got to do transformational deals. The criteria for deals is to make sure they make economic sense."

One voter: "They have a good record in doing deals. It's probably one of the few banks where you trust the track record."

Frederick Goodwin has transformed Royal Bank of Scotland Group from a regional player into Europe's second-largest bank by market capitalization with timely acquisitions -- most notably, of National Westminster Bank in 2000 -- and shrewd, cost-conscious management. Not for nothing is he known as "Fred the Shred." Within two years of the NatWest purchase, he got rid of 18,000 employees, saving the combined institution £400 million in annual costs. RBS shares have doubled since Goodwin became CEO on March 6, 2000, the day the NatWest deal closed. Last year, RBS posted £2.3 billion in profits, up 17.5 percent from 2002.

Now Goodwin is doing the same across the Atlantic. His $10.5 billion purchase of Cleveland-based Charter One Financial in May, combined with existing Providence, Rhode Island­based subsidiary Citizens Financial Group and other acquisitions, makes RBS the seventh-biggest bank in the U.S., with $120 billion in assets and a branch network stretching across the East and Midwest.

Concerns that he overpaid for Charter One and that bank earnings will suffer in a rising interest rate environment have hit RBS's share price lately, but they don't ruffle Goodwin. The multiple of 15 times prospective 2004 earnings that RBS is paying for Charter One compares favorably with the more than 16 times earnings that Bank of America Corp. shelled out to acquire FleetBoston Financial Corp., he notes. It's also less than the 17 times prospective earnings that Wachovia recently paid to purchase SouthTrust Corp. What's more, Goodwin says, rates are rising because of solid economic growth, which is good for business. "The underlying performance of the economies we're operating in is by and large good," he asserts.

Goodwin isn't convinced that consolidation will continue at breakneck pace -- he thinks mergers in the U.S. are more likely to involve medium-size banks -- but he believes that his bank's heft gives it the financial strength and geographic spread to go up against the biggest U.S. banks, no matter what happens. "What we've done makes us very competitive in the industry," he says. "We have all the advantages that the others have."

The same is true in Europe, where his bank has been an active if less showy buyer, concentrating on niche operating businesses rather than big cross-border rivals. Over the past year RBS has bought Swiss private bank Bank von Ernst & Cie., the German credit card business of Spain's Santander Central Hispano; Irish mortgage lender First Active and Credit Suisse Group's U.K. insurance subsidiary, Churchill Insurance Group.

A consummate deal maker, Goodwin, who earned a law degree at Glasgow University, says the secret to his success is not thinking he must do a deal. "The vast bulk of our income growth has been organic," he says. "That is what gives our business strength and what gives us the resources to make acquisitions. If you wake up in the morning and feel you have to do a deal, you're just casting around for something to buy." -- T.B.


MARCO DE BENEDETTI

Telecom Italia Mobile

Age: 42

Year named CEO: 1999

Company employees: 18,936

12-month stock performance: +13.0 percent

Compensation: E1.94 million ($2.44 million) salary, bonus and benefits

Stock options awarded in 2003: 1.674 million

De Benedetti: "In the 1990s it didn't matter if you were a badly run company or a well-run company in this sector. The customer growth was huge. That era is now over. Strategic vision, good management and financial soundness will dictate who are the winners and who are the losers."

One voter: "De Benedetti has steered Telecom Italia Mobile clear of wasteful acquisitions and stuck to a disciplined plan that has delivered for shareholders."

Marco De Benedetti is the leopard who changed his spots. He rose to CEO of Telecom Italia Mobile after playing a pivotal role in one of the most controversial hostile takeovers in European corporate history: Olivetti Group's highly leveraged $33 billion 1999 raid on Telecom Italia Group. Since orchestrating Olivetti's successful gambit, however, De Benedetti has been the model of conservatism, content to dominate his home market, where TIM's 26.1 million subscribers make it the world's biggest operator on a single network.

TIM has eschewed the splashy -- and costly -- acquisitions made by rivals like U.K.'s Vodafone Group and Deutsche Telekom. Though company valuations have fallen of late, De Benedetti contends that no takeover opportunity he has seen has met TIM's strict financial criteria. "If we look at the numbers from a shareholders' return point of view, acquisitions in this sector have destroyed value," he says.

"De Benedetti is a strong operational manager in a sector that is all too often characterized by flamboyant acquirers," sums up Christopher Adams, an investment analyst at London-based Morley Fund Management, which has more than £32 billion ($59 billion) in European equities under management. "He is also open and transparent and very good at responding directly to questions."

Rather than chasing pricey acquisitions, the one-time Wasserstein, Perella & Co. banker has focused on the bottom line and returned cash to shareholders. TIM's gross operating profit in 2003 was E5 billion (up 11.2 percent from 2002), with E2.2 billion distributed to shareholders as dividends. De Benedetti is further promising to pay out at least that much through 2006.

Still, with mobile phone penetration at the saturation point in Italy, where TIM commands a 50 percent market share, De Benedetti must now find ways to keep the company growing. He is convinced that more traffic will migrate from fixed-line networks and that the use of newer technologies for mobile computing will boost usage. He is also looking outside Italy: TIM is building networks across South America. In 2003 revenues from Brazil grew by 23.5 percent; 24 percent of the company's total revenue originated outside Italy. De Benedetti is open to making acquisitions, but they must offer the realistic prospect of a 30 percent annual return on investment.

"The biggest value creation in the history of telecommunications was achieved by those companies that held the second-generation licenses in Europe. That will be replayed across the developing world," says De Benedetti, who graduated from Wesleyan University and received an MBA from the Wharton School of the University of Pennsylvania.

In Europe he foresees a Darwinian battle for survival among the mobile operators. "I think we are well positioned. Our cash generation and balance-sheet strength mean we have more flexibility than some of our competitors," says De Benedetti. "There will be wave after wave of new technology in the next ten years. Miss one wave, and you will be weakened and lose customers. Only the strongest will survive." -- Andrew Capon


FRANCK RIBOUD

Groupe Danone

Age: 48

Year named CEO: 1996

Company employees: 89,000

12-month stock performance: + 23.2 percent

Compensation: E2.5 million ($3.1 million), including bonus

Stock options awarded in 2003: E7.5 million (E1.6 million exercised, E5.9 million granted)

Riboud: "When I got to this job, I felt like a small boy in the middle of a big pool. Today I have a greater mastery of the different aspects of our businesses, but it's essential to keep a kernel of that original fear, since I believe it makes me attentive, flexible and ready to change with the times."

One voter: "Riboud recognizes the secular trends of his sector and adapts to them better than any of his peers. He combines vision

with pragmatism."

Tel père, tel fils. Antoine Riboud turned a sleepy, family-owned bottle maker into France's biggest food company, Groupe Danone. In May 1996, six years before his death at the age of 83, Antoine exercised the special privileges of an old shareholder pact and handed the corporate reins to his youngest son, Franck. "Both the board and my father clearly wanted cultural continuity with the past but also a rupture when they chose me," says Riboud.

He hasn't disappointed. The younger Riboud slimmed the group from eight divisions in 1996 to just three by 2002. After selling off prepared foods, cheeses, candy, beer, pasta and even the original glass-bottling unit, Danone now concentrates on dairy products, biscuits and snacks, and beverages. The streamlined operation has become the fastest-growing food company in Europe, with average annual revenue gains of more than 6 percent since 1998. "Focus has not only allowed Danone to outpace slower-growing, more-diversified competitors, it's made the company easier to understand, which has really helped the stock's performance," says Vinzent Sperling, a portfolio manager at Activest Investment in Munich, which manages E13 billion in European equities. During Riboud's eight years at the helm, Danone's share price has risen 135 percent, versus a sector average of 51 percent.

A former skiing and windsurfing instructor who earned an engineering degree from the École Polytechnique Fédérale de Lausanne in Switzerland, Riboud joined the family firm in 1981 as a salesman, hawking the company's namesake yogurt (known as Dannon in North America and Danone everwhere else) to French supermarkets and hypermarkets. Although his pedigree helped him rise rapidly through the ranks, Riboud also scored a number of impressive achievements. He orchestrated Danone's purchase of Nabisco's European biscuit brands for $2.5 billion in 1989, pushing the group into neighboring countries; and as general manager of development in 1992, he led an aggressive drive into Asian and Latin American emerging markets. Today Danone gets a third of its E13.1 billion revenue from outside Europe. In 1994, Riboud became vice chairman and the heir apparent to his father's title. (None of his four siblings works for the company.)

In December, Danone ended the shareholder pact that allowed Riboud to take his father's job, but it hasn't adopted every good governance measure a shareholder-activist might like. Like his father, Riboud is both chairman and CEO, which he believes makes for more efficient decision making. "Ultimately, real investor confidence is built by regularly hitting goals within the target range you provide investors, and we've done that," he says. -- D.L.


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