Harvard Business Review just released its annual ranking of the world’s best-performing CEOs on Monday, and this year’s winner is a leader in health care who remains laser-focused on diabetes treatments, doesn’t fly in private jets, and will be relatively unknown to many readers in the United States.
Lars Sørenson, the CEO of Denmark-based Novo Nordisk, sits atop this year’s list of chief executives due to his company’s high ranking for both its financial metrics and its performance on environmental, social and governance issues.
The magazine, which writes that the “ranking of CEOs is meant to be a measure of enduring success,” notes that Sørenson leads the pack partly due to his nearly exclusive focus on diabetes treatment, which has boosted sales and stock returns as demand for insulin products has unfortunately grown. Yet in addition, “his standing also reflects Novo Nordisk’s deep engagement with social and environmental issues, which now factor in to our calculations,” the publication writes.
That’s a big change HBR made in its methodology this year. In the past, HBR had only examined financial metrics of the S&P Global 1200 companies-such as the country-adjusted total shareholder return, industry-adjusted total shareholder return, and the change in market capitalization during the current CEO’s tenure.
But this year, noting that past rankings “failed to account for the many aspects of leadership that go beyond mere market performance,” the publication added a measurement of the company’s environmental, social and governance (ESG) performance, which was calculated by the investment research firm Sustainalytics. Each CEO’s financial metrics are weighted at 80 percent and ESG ranking is weighted at 20 percent to come up with the final list. The list also now includes CEOs whose tenures started before 1995.
As a result, this year’s ranking differs sharply from years past. For one, the top performers are more global, perhaps a sign that many U.S. companies aren’t performing as strongly as their peers on social and environmental issues. Only three chief executives of US-based companies made the top 10-John Chambers, who retired as Cisco’s CEO earlier this year, Seagate Technology’s Stephen Luczo, and Biogen’s George Scangos. The others at the top of the list comprise six CEOs of European companies and one Japanese CEO (Canon’s Fujio Mitarai).
Last year, seven of the top 10-and all of the top five-led US-based companies. Last year’s No. 1, for example, was Amazon CEO Jeff Bezos (who also owns the Washington Post). He fell to No. 87 in this year’s ranking due to the company’s relatively lower score on the ESG metrics.
One thing that remained the same between both years: Just two women made the top 100. They are Debra Cafaro, CEO of real estate investment trust Ventas, and Carol Meyrowitz, CEO of discount retailer TJX Companies.
In an interview with HBR, Sørenson, who earns less than many of the CEOs on this year’s list and doesn’t use private jets (“that would send a signal to my subordinates that my time is more valuable than theirs,” he said) talked about the company’s “triple bottom line” philosophy. The company is part-owned by a Danish foundation, he said, which “obliges us to maximize the value of the company for the long term,” adding that corporate social responsibility also helps save money.
“If we keep polluting, stricter regulations will be imposed, and energy consumption will become more costly,” Sørenson told the publication. “The same thing applies on the social side. If we don’t treat employees well, if we don’t behave as good corporate citizens in our local communities, and if we don’t provide inexpensive products for poorer countries, governments will impose regulations on us that will end up being very costly.”
The top Texas CEO on the list is John Mackey of Whole Foods at No. 43.
To see the list: https://hbr.org/2015/11/the-best-performing-ceos-in-the-world