Click here to view the rankings.
Francis Salway is a deferential man who exudes none of the devil-may-care flamboyance of a celebrity CEO. And yet the chief executive of Land Securities Group, Britain's largest publicly listed property company, has not hesitated to shake up the U.K. property market in recent years by pioneering the so-called flexible lease, which gives tenants the option to cancel or extend their leases and scraps the usual upward-only rent review. "Land really threw away the rule book on leases," says one London-based property analyst. Sound like a recipe for lower returns? Not at all. "If you give customers what they really want, they'll often pay a premium," Salway explains. "As a publicly quoted company using equity, we ought to be innovating, we ought to be taking risks. It's up to us to manage those risks so that we don't blow the business."
Initiatives like the flexible lease, combined with a refinancing of the company's debt and increased investment in shopping centers and London office buildings, helped the company boost profits before taxes and exceptional gains by 51 percent, to £691 million ($1.2 billion), in the six months ended September 30, 2005, the latest for which results are available.
Little wonder that Salway has emerged as one of the most admired corporate chieftains in Europe. He joins 92 other chief executives in being selected as the top CEOs in Institutional Investor's fourth annual survey. To determine winners this magazine analyzed responses from some 800 portfolio managers and analysts at more than 300 firms managing some $3.3 trillion in European equities, as well as more than 600 sell-side analysts.
The winners share an appetite for risk -- careful, considered risk, that is -- and it's easy to see why. Although European bourses are in the midst of a three-year bull run, with gains ranging from 26 percent in the U.K. to 42 percent in Germany over the 12 months ended in mid-April, the operating environment for European companies remains harsh. Growth is sluggish by global standards, despite signs of a modest upturn in Germany; the appetite for structural reform remains almost nonexistent, as demonstrated by the French government's withdrawal of labor reforms in the face of popular protests; and the risk of protectionism is rising, judging by the domestic political opposition to the takeover bid for Luxembourg-based steelmaker Arcelor and the French government's arranged merger of Gaz de France and Suez to thwart an Italian bid for Suez.
"Rising economic nationalism is a threat to our company," says Ben Noteboom, chief executive of Dutch employment-services company Randstad Holding. "Protectionism will limit economic growth, and so inevitably it will affect our business."
Leading CEOs criticize the rising protectionism and advocate greater flexibility, but they aren't waiting for politicians to act. "Instead of spending time complaining, you have to ask how you'll overcome these constraints," says Carlos Ghosn, chief executive of French automaker Renault.
"Our duty is not to try to change things which are beyond our power, but to lead our companies successfully across the obstacles we face." Ghosn, who revived Renault's Japanese subsidiary, Nissan, with aggressive cost-cutting and investment in new products, is looking to reinvigorate Renault with an ambitious overhaul of its model lineup that will introduce 26 new or redesigned cars by 2009.
Many companies are ramping up investment in faster-growing economies outside Europe. WPP Group, a London-based advertising group, acquired Indian ad agency Enterprise Nexus Communications in the first quarter of this year and expects to get 33 percent of its revenues from Asia, the Middle East and Latin America within five to ten years, compared with 24 percent today. Randstad recently acquired Delhi-based Team HR Services, which has an estimated 10 percent share of the Indian temporary-employment market, for an undisclosed sum.
As they seek to build their businesses, European CEOs face obstacles other than sluggish economies and political resistance to change. Many corporate chieftains bemoan the markets' myopia, which they believe is increasing the pressure for short-term returns at the expense of long-term strategy.
"It's very difficult to run a business in the long-term interest," says WPP chief executive Martin Sorrell, who has passed on two potential acquisitions in the past six months. "Hedge funds increasingly dominate equity trading. Boards don't like CEOs taking risks. Post-Enron, boards don't like being criticized. These all put a short-term focus on things."
The heightened pressure from investors -- and regulators -- is transforming the way chief executives handle their relations with the outside world. The silver-tongued raconteurs of old have made way for more disciplined communicators, for whom credibility is everything. As Ghosn describes his golden rule, "Never say anything you don't have a full intention to deliver on." Noteboom is also a firm advocate of no surprises. "Investors like a consistent and predictable message. I tell them I want to run a dull company where the only surprise is a positive one on the numbers."
Communication is also a two-way street. That's why many top CEOs are eager to get out of the corner office to meet with employees and customers alike. Gunnar Brock of Sweden's Atlas Copco, who ranks first in the capital goods sector, travels 150 days a year to meet with customers around the world. The benefits are priceless, he says: "For a CEO, it's unfiltered information, the naked truth about how we're doing."
