How We Ranked The CEOs

The debate as to how much the man at the helm contributes to a company’s performance continues and will continue being debated in the times to come.

Interestingly enough, even Harvard Business Review’s best-performing CEO of 2015, Lars Sørensen of Sweden’s Novo Nordisk, admits that luck was the single most important force in achieving that ranking.

“How much do CEOs matter” is certainly not easy to quantify. However, there is no doubt that luck cannot be the only reason — talent, ability, charisma, dynamism and drive of the CEO impact the performance of a company over a period of time.

We started with a filtered database provided by Ace Equity, which took the BSE 500 as the base giving a large and representative universe to start with. To this universe, we applied a set of filters to generate a list of companies whose performance could be measured. The filters included: companies whose CEOs had a tenure of at least three years; had a trading history of at least 700 days in the last three years; where no losses should have been reported in the past three years; where revenues should have been greater than Rs 250 crore for the 2014-15 fiscal.

We took the filtered database and grouped the companies into four categories: Heavyweight (revenues greater than Rs 20,000 crore); Very Large (revenues between Rs 7,500 crore and Rs 19,999 crore); Large (revenues between Rs 2,500 and Rs 7,499 crore) and Medium (Rs 250 crore to Rs 2,499 crore). Interest earned for banks and income from operations for other companies were considered as revenue for the purposes of this categorisation for CEO ranking.

The methodology to evaluate performance focused on a combination of financial and environmental, social and governance (ESG) factors.

We took into account the revenue CAGR and EBIDTA CAGR for the last three years and the weighted average Return on Capital Employed (ROCE) and weighted average market capitalisation giving the current year the highest weightage. We used compound average growth rate figures rather than absolute figures and also weighted averages to focus on most current performance. Each of these four financial strength parameters was given a 25 per cent weightage to average out industry bias within the categories and a percentile ranking was done by category.

Environment, social and governance parameters were then applied to those companies that had a 50 percentile or above financial score ranking in Heavyweight and Very Large categories and 60 percentile or above financial score ranking in Large and Medium categories. These parameters included existence of sustainability report; third-party assurance of the report and level of GRI sustainability reporting compliance; meeting of the 2 per cent CSR spend norm as per the Companies Act 2013; existence of any qualifications in audited financials; existence of 50 per cent independent directors on the Board; and external corporate governance rating

The overall financial score was given an 85 per cent weight and the ESG score a 15 per cent weightage since this was a more subjective parameter. We then once again reviewed the CEO name, role and ensured eligibility.

The top five in the Heavyweight and Very Large categories and the top six in the Large and Medium categories were run through a poll consisting of internal experts. The internal poll rankings were given a 15 per cent weightage to come out with the Top 3 in each category to constitute the Dynamic Dozen.

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The Most Dynamic CEOs List I | II | III | IV | V