There are plenty of awful CEOs out there, but serious investors are better served by focusing on and studying exceptional corporate leaders. Why? Because great CEOs share similar traits, and they can drive enormous value creation on behalf of shareholders.
As a result, being able to identify them is tremendously useful. With that in mind, our Foolish analysts have selected four of the greatest CEOs of all time, in their estimation.
Alex Dumortier: My guess is that you've never heard of Dr. Henry Singleton. Charlie Munger, vice-chairman of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) asked this question about Singleton: "Given the man's talent and record, have we learned enough from him?" If the record of most CEOs is anything to go by, the answer is surely no.
Warren Buffett -- a top candidate for greatest CEO of all time in his own right (see below) -- was unequivocal in his opinion of Singleton, stating in 1980: "Henry Singleton has the best operating and capital deployment record in American business ... if one took the 100 top business school graduates and made a composite of their triumphs, their record would not be as good as Singleton's."
Just who was Henry Singleton? An MIT graduate who co-founded Teledyne, he led the industrial conglomerate for three decades. Like Buffett, he was able to use the conglomerate form to its best advantage thanks to superlative capital allocation skills. When he thought they were overvalued in the 1960s, Singleton used Teledyne shares for acquisitions; conversely, he turned around and repurchased nearly 90% of the company's stock from 1972 to 1984, when shares were undervalued.
The company's results speak for themselves: During the quarter-century spanning 1961 through 1986, Teledyne's net income per share compounded at an annualized rate of 35.6%, while shareholders' equity rose at an annualized rate of 29.6%.
I don't have room to pay a proper tribute to Dr. Singleton here, but there are some excellent resources on the Web, including this presentation from former Goldman Sachs partner Leon Cooperman, and this comprehensive case study. Note that Dr. Singleton is also profiled in William Thorndike's outstanding The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success.
Dan Caplinger: You have to go back almost a century, but Henry Ford was instrumental in turning Ford Motor (NYSE:F) into the behemoth that it is today. His leadership skills went beyond simply governing the automaker's corporate existence to considering the multiple stakeholders involved in helping his business succeed.
Operationally, Ford's work to create an assembly line production method that would result in making the Model T available for mainstream consumers revolutionized the auto industry, opening up the business to much greater demand than it would have had otherwise. In addition, his view of labor economics was unparalleled at the time, as he believed that paying higher wages to workers would help drive demand for the company's products, while also making Ford's employee base more loyal to the business overall. His attention to cost-cutting helped keep Ford efficient, and Ford also ended up opening vehicle production plants worldwide to meet demand across the globe.
Most important, Ford didn't get to where he ended up without plenty of failures, struggling for years to find the right mix of technological ability and consumer attractiveness. With his can-do spirit, Ford epitomized the modern positive CEO, and many people still mirror Ford's philosophies nearly a century later.
Jordan Wathen: You know Warren Buffett for his investing savvy, but I truly believe he's underappreciated for his skill as an operator. Buffett understands better than anyone the power of psychology and financial incentives.
Well before his rise as a stock picker, Buffett was quietly buying up whole businesses, like National Indemnity, an insurance company he purchased in 1967. National Indemnity was never a superstar. In fact, its premium revenue cratered for 13 years, plunging from $366 million in 1986 to $54 million in 1999.
With such a sharp drop in revenue, most businesses would be cutting employees left and right. Buffett never did that, believing that if he laid off employees, the remaining workers would just make increasingly worse decisions to justify their time in the office each day.
He later wrote that, "National Indemnity was a no-name company when we bought it, and has no copyrights, patents, etc. to distinguish it, but they have a record like no-one else because they had discipline."
Buffett has structured incentives for everyone from managers to secretaries to encourage behaviors that pay dividends over decades, not from quarter to quarter. It's a management model that underlies Berkshire Hathaway's incredible returns during his tenure.
Selena Maranjian: One often underappreciated CEO (now CEO emeritus) is Herb Kelleher, who founded Southwest Airlines (NYSE:LUV), and ran it for many years. (His tenure spanned 1967 to 2008.) Evidence of his effectiveness can be seen in the stock's performance, featuring average annual gains of 13% during the past 30 years.
That's particularly impressive when you consider that the S&P 500 averaged just 8% during that period, and when you consider that the company's industry -- the airline business -- has been an especially tough one for... ever. For a long time, it's had to deal with being a capital-intensive business, bad weather and the logistical nightmares that it creates, the cost of empty seats, volatile fuel prices, fare wars, labor issues, and more. Few airlines have remained profitable for decades -- but Southwest has.
Kelleher's genius is partly that he embraced innovation, and thought outside the box. While rivals typically had a range of airplane models in their fleets, Southwest focused on the 737, which simplified its business a lot, in terms of training, maintenance, and repairs. It became known for low fares, and created a company culture of fun, with its flight staff often telling jokes -- and sometimes singing. Southwest doesn't issue seat numbers, which makes last-minute plane changes simpler, as different seat configurations don't require the issuance of new boarding passes.
Southwest also passed on the traditional hub-and-spoke system, where airlines send many planes through a few key airports en route to their destinations. Instead, it opted for point-to-point service -- which can reduce lost luggage, too.
Kelleher's legacy remains: Southwest is still different from others today, as one of the few airlines not charging passengers to check bags, and permitting free ticket changes, too. Given Southwest's long-term success -- it was recently the nation's largest carrier in terms of originating domestic passengers boarded -- Herb Kelleher belongs in the pantheon of great CEOs.
Alex Dumortier, CFA, has no position in any stocks mentioned. Dan Caplinger owns shares of Berkshire Hathaway and Ford. Jordan Wathen has no position in any stocks mentioned. Selena Maranjian owns shares of Berkshire Hathaway and Ford. The Motley Fool recommends Berkshire Hathaway and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.