Gold trophy award \
When the financial press offers a list of “the best” of anything corporate, it’s important to see what standards are being applied, and check whether the designation of “the best” is merited. Yesterday’s list of Barron’s 24 “Top CEOs of 2022” is a case in point.
What’s shocking is that more than half of these “top CEOs” have yet to take the first and most important step of being an effective CEO in today’s customer-driven economy: they have yet to establish customer primacy in their firm’s mission statement. It is hardly a surprise, then, that more than half the firms led by these “top CEOs” are performing below the average S&P 500 company.
Barron’s Methodology: A Beauty Contest
The first clue starts from Barron’s explanation as to how the “top CEOs” were selected. No rigorous criteria applied in selecting the top 24 CEOs. Instead, the list is a set of combined opinions of Barron’s editors and reporters. This group “screened the market for signs of financial strength and improvement, but only lightly, in order to quickly turn the matter over to our panel of editors and beat reporters. Stages of their work included nominee selection, initial debate, further research, gradual compromise, advanced wrangling, and final agreement.”
Not surprisingly, such a beauty-contest approach results in anomalies flowing from the accident of who is in the room when the rankings are made. Thus a number of Barron’s 2021 “top CEOs,” such as Elon Musk (Tesla), Jamie Dimon (JPMorgan) and Larry Culp (GE) have disappeared from this year’s list without explanation. Despite the systemic nature of a CEO’s contribution to performance, it seems that the deciders were very much influenced by current headlines, not a deeper examination of the systemic quality of the respective CEO’s contributions.
The Case Of Paramount Global
Take the first case mentioned, Paramount Global (PARA). We learn that “CEO Bob Bakish led the return of movie studios to theaters this year with five No. 1 releases, and is growing revenues in streaming faster than Netflix and Walt Disney (DIS). Those two say they will soon follow Paramount’s playbook by launching cheaper subscription tiers with advertising.”
If we look at one-year total returns of the three companies mentioned, Paramount Global is doing somewhat better than Walt Disney and Netflix. But doing better than its two rivals is no comfort when the sector as a whole is performing below average when compared to the average S&P 500 company.
Figure 1 Paramount Disney Netflix one year total returns
If we look at the 5-year picture, we can see that the Paramount Global’s trajectory is essentially the same, apart from a brief spike in 2021. All three firms are viewed by the stock market to be performing worse than the average S&P 500 company, with Netflix’s fall from grace being even more exaggerated.
Figure 2 Paramount Disney Netflix five year total returns
Barron’s positive rating of Paramount Global is based on two short-term achievements: five No. 1 releases and a recent acceleration of streaming revenues.
If we go to the mission statement of Paramount Global, we find that its mission is lacking customer focus: “To be a global family with a passion for building lasting partnerships through inventive solutions and personal service.”
In today’s customer-driven economy, lack of customer focus is a systemic issue that CEO Bakish has yet to address. The failure raises questions whether CEO Bakish should be seen as one of the world’s top 24 CEOs.
The Relation Of Customer Focus And Performance
If we look at the entire list of 24 firms, as shown in Figure 3, we see that only 11 of the 24 firms have mission statements that are tightly focused on customers. And almost all the 13 firms without a customer-focused mission statement are performing below the average S&P 500 companies over a sustained five-year period.
By contrast, all but one of these 11 firms with a customer-focused mission statement are performing better in terms of total return than the average S&P 500 companies over a sustained five-year period.
Figure 3: Barron's 24 top CEOs of 2022
The Urgency Of CEOs Committing To Customer Primacy
Most of the CEOs in the 24 firms have only been on the job for two or three years, reflecting the tenuous nature of CEO appointments in the current turbulent corporate environment. But committing to customer primacy should, as Satya Nadella (Microsoft) recognized, be one of the first systemic actions that a CEO should take.
Nadella took some nine months to reach agreement on the new mission statement that is simple and clearly customer-focused: “To empower every person and every organization on the planet to achieve more.” It replaced a wordier version that alluded to multiple goals. The new mission statement was a key factor in Microsoft’s energizing its staff and rapidly growing its market cap by more than a trillion dollars. Making money is not Microsoft’s goal: it is a result of tight customer focus.
Muddled Mission Statements Lead To Poor Performance
The flaws in the mission statements of the 13 firms that have yet to commit to customer primacy are various, as shown in Figure 2.
· Pfizer for instance has succumbed to the fashion for stakeholder capitalism: “To become the world's most valued company to patients, customers, colleagues, investors, business partners and the communities where we work and live.” When a firm gives primacy to all the potential constituencies, it gives primacy in effect to none. Sometimes, Pfizer gets the decision right, as in its partnership that led to a successful Covid vaccine. But overall, with its current mission statement, it’s no surprise that Pfizer is performing below the average of the S&P 500.
· Other firms are pursuing vaguely social missions, like Ford’s mission “to help build a better world, where every person is free to move and pursue their dreams.’ This may have sounded good in the board room, but it fails to give any clarity as to what Ford is or should be doing.
· Other firms, like Kraft Heinz and Exxon Mobil, have internally focused missions “to be the best”, leaving customers and users out of the picture.
· Other firms, like EQT, make no secret of pursuing the goal of maximizing shareholder value—the goal that the Business Roundtable denounced in 2019. Not surprisingly, EQT too is performing below the average of the S&P 500.
Figure 4: Mission statement of firms of Barron's top 24 CEOs of 2022
The Need For Wider Recognition Of Customer Primacy
We are dealing here with firms selected for having “top CEOs”. The situation is at least as bleak for average firms. Many have yet to recognize that in a customer driven economy, firms must start from customer primacy to have any chance of achieving above-average returns. To help enable this shift, it is important that journalists creating rankings give explicit attention to customer primacy in their selections of “the best.”
And read also:
