The Best U.S. Executives Aren't Sitting on Their Hands
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The Best U.S. Executives Aren't Sitting on Their Hands

JPMorgan Chase & Co. CEO Jamie Dimon
James "Jamie" Dimon, chief executive officer of JPMorgan Chase & Co., speaks during an interview in New York, U.S., on Tuesday, Nov. 8, 2011. MF Global Holdings Ltd. creditors formed a committee including JPMorgan Chase Bank NA and Wilmington Trust Co. as they seek recoveries from the eighth-largest bankruptcy in U.S. history. Photographer: Scott Eells/Bloomberg *** Local Caption *** James "Jamie" Dimon | Scott Eells/Bloomberg

The 2012 All-America Executive Team is making big acquisitions and investments even as it keeps a close eye on costs, according to Institutional Investor's third annual ranking of the nation’s best CEOs, CFOs, investor-relations professionals and IR companies. For the second consecutive year, Jamie Dimon of JPMorgan Chase & Co. topped the ranking as the best CEO.

The worst of the financial crisis may be over and the recovery, weak as it has been, still on track. But corporate executives continue to find themselves in an ominous setting. Uncertainties abound both in the U.S. and abroad over everything from consumer demand to government regulation and policy. This makes for a landscape that is both less stark than that of 2008 and 2009 and more ambiguous. In crunch mode executives did well to hunker down, focus on the short-term and work on controlling costs. Managements now, however, must engage in longer-term strategizing—a tall order when the outlook holds so many what-ifs.

Conference Board CEO Jonathan Spector believes today’s conditions may present even larger and more difficult challenges than the financial crisis did.

“During the crisis the decision-­making framework needed to operate was somewhat clearer, given the incredible sense of urgency,” Spector says. “Now the environment is more complicated because we have the prospect of a very sustained period that’s not quite a crisis. It’s less clear what the obvious path is.”

Gregory Hayes, chief financial officer at Hartford, ­Connecticut–based conglomerate United Technologies Corp., is one top executive who has found that to be true.

“I never want to live through 2009 again,” says Hayes, whose company makes products ranging from elevators and refrigeration units to airplane engines and fire-­protection systems. “But when you have this sluggish growth, this uncertain environment, it’s hard to know where you should invest, or how much you should invest. It’s certainly more challenging now.”

Hayes is one of the U.S. corporate leaders who are handling that difficulty best, according to the buy- and sell-side analysts who voted for Institutional Investor’s 2012 All-­America Executive Team, our exclusive ranking of the nation’s best CEOs, CFOs, and investor relations professionals and teams.

Spector says that what distinguishes the best companies in today’s climate is that they’re not so spooked by the unknown that they hesitate to grab good opportunities when they see them. The executives recognized in the 2012 ranking are quick not only to distinguish good prospects from bad but to capitalize on the first and abandon the second. Hayes and his fellow All-­Americans are making significant acquisitions or other investments even as they continue to rationalize their product lines, supply chains, manufacturing operations and balance sheets. These executives are undaunted by uncertainty. Instead, they are managing their companies more intelligently in the face of it, with nuance and flexibility unseen in a long while. “The best companies are adjusting,” Spector says. “They’re not sitting on their hands.”

A good example is Enterprise Products Partners, the largest publicly traded energy partnership in the U.S. Given the cloudy macro picture, Enterprise could easily coast on the growth the energy industry is enjoying. “The U.S. petrochemicals industry is bursting at the seams,” says Michael Creel, CEO of Enterprise, who is rated tops in the Natural Gas & Master Limited Partnerships sector by both buy- and sell-side analysts. “The industry’s good fortune has turned into our good fortune,” Creel acknowledges.

The Houston-based company reported record net income of $480 million for the third quarter, ended September 30, up 38 percent from the $348 million it reported a year earlier. Net income for the first nine months of the year was $1.36 billion, up 25 percent from $1.09 billion for the same period in 2010.

Yet Enterprise isn’t just riding the industry’s coattails. Instead, Creel and CFO, W. Randall Fowler—also the best executive among his peers, according to both the buy and sell sides—are positioning the company for further growth. (Enterprise also boasts the sector’s best IR, say sell-side analysts, and Randy Burkhalter is both sides’ pick for top IR professional.)

“Enterprise’s executives are some of the most astute value creators in the energy space,” says Morgan Stanley researcher Stephen Maresca.

A “midstream operator” that stores, processes and transports oil and natural gas, Enterprise has come a long way since 1968, when ­Texas-born oilman Dan Duncan founded the company near a big East Texas oil field at Mont Belvieu (Duncan was still Enterprise’s chairman and majority shareholder when he died in 2010 at age 77 after suffering a cerebral hemorrhage.) The company went public in 1998, and soon after began a series of mergers and acquisitions that expanded its network of pipelines. By 2009, Enterprise had become one of the largest midstream operators in the U.S., with a network of pipelines transporting crude oil, refined products, natural gas and ­natural-gas liquids that reached as far west as Wyoming and as far east as New York.

Enterprise plans to exploit the latest discovery of shale, from which natural gas can be extracted, at the so-called Marcellus site in the Appalachian Basin of the Northeastern U.S. by establishing a 1,230-mile pipeline from the site to the nation’s Gulf Coast petrochemicals hub. (Only about half of the pipeline would be new, as it would interconnect with an existing one.) The network would be the first to move liquefied ethane, a feedstock in the production of ethylene, which is used in manufacturing certain plastics, from the Northeast to Enterprise’s storage facilities in Mont Belvieu. In early November Enterprise announced that it had locked in a major customer for the pipeline — Oklahoma City–based oil and ­natural-gas drilling company Chesapeake Energy Corp. — a huge boon for the project, since Chesapeake’s business would account for 60 percent of the proposed pipeline’s initial capacity of 125,000 barrels a day. The pipeline’s operation is slated to begin in early 2014.

Enterprise has also simplified the company’s structure. In November 2010, Enterprise Products Partners bought Enterprise GP Holdings for roughly $9 billion. Less than a year later, it merged with Duncan Energy Partners. At that point Enterprise had gathered what had been four different publicly traded but related entities into just one.

“Today our balance sheet is about as simple as you can get,” says Creel. “It’s much easier for investors to understand.”

Investors earlier cheered management’s decision in the fourth quarter of 2010 to eliminate the incentive distribution rights that went to the company’s general partner—which was controlled by the Duncan Family Trust. Typically, partnerships like Enterprise provide their general partners with increasingly large cash distributions, which siphons cash flows that would otherwise be going to common unitholders and bondholders. But Creel explains that the Duncan family gave up those rights for no consideration—a rare move—partly because the family together with management holds the largest equity stake in Enterprise, 39 percent.

“That large insider ownership means we’re directly aligned with our public unitholders,” Creel says.

Not everything at the company has been going smoothly. A fire at Mont Belvieu in February 2011 killed one worker and halted operations for several days. IR chief ­Burkhalter and his team responded quickly with a press release laying out all the facts they had in hand, which limited the fallout. “If you want to earn credibility when things go well,” he says, “you have to be accessible when something bad happens.”

Enterprise’s IR team acted similarly when ­Duncan died. “We got a press release out quickly, and then I took calls,” Burkhalter explains. “The message on the calls was, ‘Yes, it was unexpected, but he put his management team in place. He was the strategic leader, but we have a deep bench and we’re going to carry on his legacy.’ And we have. That’s the way we run our business.”

Caterpillar, the world’s largest manufacturer of construction and mining equipment, is another company that could have hunkered down in the face of uncertainty. In January 2010, six months before CEO Douglas Oberhelman took the reins, the Peoria, ­Illinois–based company posted 2009 revenue and profit results that were its bleakest since the 1940s, as construction in the U.S. and abroad all but halted in the midst of the economic meltdown.

And that followed concerns that the financial crisis would take a toll on its big finance subsidiary, which though unjustified posed a huge investor relations headache, says Michael DeWalt, head of IR for Caterpillar. “You just had to, in some ways, overcommunicate,” says DeWalt, whom buy-side analysts rate the top IR professional in the Machinery sector. “We talked more about the finance company, I took herds of investors down to Nashville to talk to our people down there. I took the CFO of our finance company on road shows. You just have to communicate more when you’re in those situations.”

Caterpillar not only allayed investor concerns about Cat Financial but also bounced back strongly in terms of results. For 2011, Oberhelman’s first full fiscal year in the corner office, revenues and profits look to break records at the top end. After a ­stronger-­than-ever third quarter, the company said it expects sales for the year to be $58 billion. Profits for the first three quarters already total $3.42 billion, nearly overtaking full-year profits in 2008 of $3.56 billion—the most in company history.

Part of the boost in 2011 reflects a backlog of orders coming through after a long lull in construction and mining, but Caterpillar’s new CEO deserves some of the credit too. Both the buy and sell sides deem him the strongest chief executive in the sector. CFO Edward Rapp earns his category’s distinction from the buy side, which also recognizes the company as its sector’s best when it comes to IR.

One reason is the executive team has adjusted to continued weakness in the U.S. construction industry by shifting Caterpillar’s focus to mining.

In early November the company announced plans to buy China’s ERA Mining Machinery. That purchase came a few months after the acquisition of Milwaukee-­based Bucyrus International, a mining equipment maker. The price for Bucyrus was $8.6 billion, making the deal the largest such undertaking in company history.

“We think mining has a very bright future in all kinds of ores, minerals, you name it,” Oberhelman says. “We decided early on that mining is one the areas we want to grow in inorganically.”

China itself is another major area of focus, as both construction and mining are growing strongly there. “We identified that China would shape the 21st century in many ways,” notes Oberhelman. “We wanted to win in China.” In addition to the ERA acquisition, Caterpillar took advantage of burgeoning demand for corporate debt among investors in Hong Kong by issuing two renminbi-denominated debt offerings, known as “dim sum” bonds, in a little more than a year of each other, with the first issued in November 2010. That raised 3.3 billion renminbi ($521 million) in attractively priced debt whose proceeds Caterpillar will use to finance purchases of its products in China, where it now has 16 factories and about 9,000 employees.

With the broader economy out of any executive’s hands, many who score highest in our survey are positioning their companies to do well regardless of what direction it takes.

“The theme of the year is, ‘Focus on what you control,’” says United Technologies’ Hayes, rated best CFO in his sector by both the buy and sell side. In his view those items include expenses and personnel. (Both sides also designate Akhil Johri the Aerospace & Defense Electronics’ best IR professional and UTC its best overall company in IR operations.)

“You can focus on cost, and you can focus on developing your people to have the right leadership team in place to execute on your strategies,” Hayes says.

Doing that has helped UTC overcome weak U.S. housing as well as budget cuts at the Department of Defense (to whom it supplies military aircraft), as the conglomerate is projecting earnings growth of 15 percent on sales growth of 7 percent for 2011.

Yet UTC is not risk averse, as evident in late September, when the company said it would buy Charlotte, North ­Carolina–based aerospace industry manufacturer Goodrich Corp. for $18.4 billion, the biggest-­ever acquisition in the company’s history. Three weeks later, UTC announced a deal with the U.K.’s Rolls-Royce Group to buy its share of International Aero Engines, a Glastonbury, ­Connecticut–based producer of engines for midsize commercial ­aircraft.

Though shareholders applauded, those are likely to be UTC’s last major takeovers for some time, as the deals will double the amount of debt on the company’s balance sheet. Instead, UTC will focus on divestitures well into 2012. “There are things we still need to do in terms of pruning the portfolio,” Hayes says.

As for cost-cutting, the emphasis has shifted away from layoffs. Net head-count reductions in 2011 totaled 2,800 through September 20, a pace below that which produced 5,000 in 2010, 14,600 in 2009 and 6,300 in 2008. Now the company is looking to relocate factories from high-cost areas to ­lower-cost ones. In some cases, the savings come from better efficiencies: The conglomerate is moving production from an Otis Elevator Co. factory in Nogales, Mexico, to South Carolina, where it plans to consolidate Otis’s North American ­production.

“Sales growth is modest,” Hayes explains. “But earnings growth is good because we continue to focus on cost.”

Food companies like H.J. Heinz Co. aren’t letting price inflation for basic commodities such as sweeteners, beans and dairy products hold them back.

At the end of 2010, Heinz management announced a goal of increasing its proportion of sales from emerging markets to more than 20 percent, from 15 percent at the time. The company surpassed that goal during the quarter ended July 27, with 23 percent of sales coming from these markets (most notably from China, India and Indonesia).

Growth there helped the Pittsburgh-based food company best known for its ketchup post record-­breaking sales, net income and cash flow for fiscal 2011 (ended April 27). CFO Arthur Winkleblack, the best CFO in the Food sector according to both sets of voters, says that emerging markets are “far and away” the greatest driver of growth for the company and that Heinz is looking to widen its exposure to roughly a third of sales “as quickly as we can.” (Company CEO William Johnson and IR chief Margaret Nollen are deemed No. 1 in their sector by both buy- and sell-side analysts, and the latter rate the company’s overall IR efforts best.)

Heinz took a big step in that direction during the past year with two acquisitions. In November 2010 the company acquired Foodstar Holdings, a Chinese company that specializes in premium soy sauce and fermented bean curd and generates sales of about $100 million a year. Five months later Heinz bought an 80 percent stake in the ­manufacturer of Quero, a Brazilian brand of tomato-­based sauces, ketchup, condiments and vegetables. With annual sales of $325 ­million, Quero is expected to double Heinz’s sales in Latin America.

Yet Heinz has also made a series of cost-­cutting and efficiency-­improving moves, with plans over the next 12 months to close eight factories, trim its workforce by 2,000 employees (about 6 percent of its total) and build a European supply chain hub in the Netherlands to consolidate such operations on that side of the Atlantic. And since the company now generates more than 70 percent of its sales from its top 15 brands, it has decided to focus its marketing on those. “It used to be that we had lots of brands in lots of categories and lots of countries,” says Winkleblack. “We have narrowed that focus very significantly.” First in that group is the flagship Heinz brand, along with frozen-­food brand Smart Ones, and two brands sold in India: ABC sauces and Complan protein beverages (five of the top 15 are in emerging markets).

At the same time, spending on marketing rose to $427 million in fiscal 2011, from $269 million before the recession. The company is also looking for productivity gains of $1 billion plus during the next five years.

“We’re needing productivity to be strong given the economy in which we’re operating,” Winkleblack says.

Procter & Gamble Co.’s past year was enough to give the most aggressive executive reason to pause. Pressed by high energy and commodities costs and limited growth in developed markets, the Cincinnati-­based consumer goods giant has been forced to raise prices on its products across the board. Even so, the company is spending more heavily on new product development.

The buy side votes both P&G’s chief executive, Robert ­McDonald, and CFO Jon Moeller as tops in Cosmetics, Household & Personal Care Products. Both the buy and sell sides rate John Chevalier the sector’s best IR professional and the company best in overall IR.

Ali Dibadj, a Sanford C. Bernstein & Co. analyst, says P&G has room to run with what he says is a classic approach in this ­environment.

“P&G’s management has just started to implement the time-­tested formula to grow in consumer staples,” says Dibadj. “Cut costs aggressively and reinvest effectively.”

The two most significant areas of new expenditure are research and development, and marketing. The company poured $9.32 billion into advertising — 11.3 percent of sales — in fiscal 2011 (ended June 30). That’s $1.8 billion, or 24 percent, more than what it invested two years earlier. Into R&D P&G channeled $2 billion in fiscal 2011, up from $1.95 billion in 2010 and $1.86 billion in 2009.

The spending has rankled some shareholders, given the cost pressures the company is facing: Commodities consumed $1.8 billion more than they had a year prior, and Moeller expects a similar jump in fiscal 2012. Growth in developed markets is nearly flat.

But P&G is sticking to its guns.

“We’re not going to chase short-term fluctuations in commodity costs or foreign exchange rates at the expense of our strategy,” says the CFO. “We’re going to execute with an eye on the long term.”

That stance has left P&G with little choice but to increase prices. To offset those the company is also cutting expenses and exiting less-­profitable business lines. It is building factories closer to the points of consumption, especially abroad, and automating more operations, while divestitures over the past year have included Infasil, Pringles and Zest.

The company is also determined to jump-start emerging-­markets sales. McDonald has stated that he expects to win 800 million new customers by 2015, most of them in Asia and Africa. With an eye to that goal, P&G is building about 20 factories in those regions.

P&G has gained 400 million new customers in the past two years alone. “Our overall objective is to serve every customer in the world today,” says Moeller.

Coca-Cola Co. could play it safe, sitting firmly at the top of its industry. Coke commanded a 42 percent market share in the U.S. soft drinks segment in 2010, compared with 29.3 percent for archrival PepsiCo. Not good enough, says management. By 2020 it intends for the Coca-­Cola system (which includes its 300 independent bottlers around the world) to have the No. 1 beverage of its kind in every market around the globe, double current servings, to more than 3 billion a day, and more than double the system’s total revenue.

The goals are part of Coca-­Cola’s 2020 Vision, which it developed two years ago to clearly articulate to investors the strategy meant to pull the company and its bottlers through the economic storminess, and whatever was to follow. Sell- and buy-side analysts rank CEO Muhtar Kent, CFO Gary Fayard and investor relations head R. ­Jackson Kelly best in the Beverages sector. The sell side also bestows top honors to the company’s overall IR efforts.

In line with those lofty expectations, 2011 looks to be a banner year. In the third quarter, ended September 30, earnings were up 17 percent on revenue growth of 45 percent, to $12.25 billion. For the nine months earnings were up 12.5 percent, to $8.2 billion, on revenue of $35.5 billion, up 44 percent over the same period a year earlier.

Earnings were helped by the company’s acquisition in October of 2010 of the North American operations of its largest bottler, Atlanta’s Coca-­Cola Enterprises. The move upended Coca-­Cola’s 24-year strategy of separating bottling from the rest of its business, but executives said the deal would help the company cut costs, speed innovation and assume more control over distribution. The acquisition is expected to yield cost savings of up to $150 million in 2011.

But Coke still faces headwinds. Spikes in the prices of commodities like corn, juice, metal and plastic, on top of slumping consumer demand in its home market in the second half of the year, pushed management to implement two price increases in 2011 — a move it’s loathe to make during a time of depressed consumer confidence. But the company sought to dampen any backlash by introducing miniature cans of soda and charging the same price for 7.5-ounce cans as it does for the traditional 12-ounce variety. “You get margin,” says CFO Fayard, “but at the same time, you’re giving the consumer something they actually desire.”

As domestic growth slows, Coca-Cola, like other companies, looks to emerging markets. Seventy percent of the company’s business already comes from outside the U.S., as Coke does business in more than 200 countries, but its leaders see the potential to expand its presence in such places as India. While India is one of Coke’s top-ten markets, annual per capita consumption of Coke products there is only 11 servings, compared with 600 in Mexico. “The potential in India and emerging-­market countries like that is so vast, it’s almost unbelievable,” Fayard says.

Observes one sell-side analyst about Coke’s top executives: “They strongly believe in their products.” But those execs also recognize, as does the rest of the 2012 All-­American Executive Team, that the current environment requires a capacity for adaptability as well as conviction.  • •


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