Editors' Pick: Originally published Dec. 28.
Who's overseeing the companies you invest in? Do they have a top-notch board of directors, actively engaged with the company? Or is the boardroom stocked with a bunch of yes-men and yes-women fawning over the CEO?
Board service is getting increasingly demanding, with directors of companies in the S&P 500 now sitting on an average of a little more than two public company boards, according to an executive database maintained by research firm BoardEx, which is owned by TheStreet, publisher of this website. That's a big change from previous eras like the 1980s and 1990s, when serving on several boards at the same time was typical.
So who's making the grade?
There's no easy way to measure boardroom performance, since boards don't manage companies directly, but oversee those who do. Likewise, there are usually about a dozen people on a board and not all of them have equal roles. Moreover, boards have revolving doors, with directors coming in and going out at different times.
Still, correlating a company's stock performance with the presence of individual directors on the company's board can be a useful exercise even if doesn't mean an individual director caused that performance.
"This is an association, at best," said Stanley Peterburgsky, a professor in finance at Brooklyn College. "But it doesn't mean it's insubstantial."
Using data from BoardEx, we looked at all the independent directors in the 30 companies in the Dow Jones Industrial Average and compared the performance of their companies' stocks during their board tenure to that of the Dow during the same period. Then we annualized those performance numbers and calculated an average across all the boards an individual served on.
"This is like a batting average for board members," said Peterburgsky, who reviewed our formula. "Taking an annual rate and then an average gives you a sense of how they might do if they were 'traded' and went to another company."
Since board members with management roles obviously have a much more direct impact on a company's performance and stock price, we threw out instances of inside directorships for each board member. We also limited our pool to directors who served on at least two outside boards and tossed out cases where a director served on a board for less than a year, in order to look at more substantial, longer-term performance. Obviously, we couldn't account for membership on the boards of private companies.
After stripping out all those cases, we arrived at a universe of 136 directors out of the roughly 300 directors on Dow boards and then ranked them by their outperformance.
A good outperformance number can have all sorts of different meanings behind it. It can point to a knack for corporate governance and decision-making, but it can just as easily mean a successful professional network, good market conditions for a particular industry, or maybe even that the director has a great headhunter, placing him or her on up-and-coming companies.
Conversely, a bad outperformance number doesn't necessarily mean a bad board member. It can mean an underperforming sector, a period of contraction in the economy or a long-term growth strategy that the director didn't stick around for. Similarly, directors choose the boards they want to serve on for all sorts of reasons. They might even be attracted to the challenge of helping run a company that's lost its footing.
All that said, here are the directors on boards in the Dow whose companies on average have outperformed the market by the largest margin over the course of their tenures. It's worth noting that half of our top scorers were female. That's remarkable considering women hold only 17% of the board seats on Fortune 500 companies in total, according to data from Catalyst, a women's workplace advocacy organization. Of the 136 board members that met our criteria, 37 of them, or 27%, were female.
All the numbers are up-to-date as of December 21, 2015.
10. Michele Hooper - UnitedHealth, PPG, Target, DaVita - 41.4 percentage point average annual outperformance
With a diverse set of companies under her direction, ranging from retailer Target (TGT) to kidney care provider DaVita (DVA) to paint maker PPG (PPG) , Michele Hooper has one of the longest careers in the boardroom of anyone on our list.
During her time on the board of UnitedHealth (UNH) , the company's stock outperformed the Dow Jones Industrial Average by 15 percentage points a year, climbing to $116.87 from $47.90. Target beat the Dow by 31 percentage points a year over her tenure and DaVita by 132 percentage points, more than doubling in a little over a year.
Hooper is a career board member, not just a CEO who's been tapped for her expertise. She's served as the president of the Chicago chapter of the National Association of Corporate Directors, and she's the co-founder of the Director's Council, which "specializes in corporate board of director recruitment focused primarily on diversity candidates," according to her bio on the Security and Exchange Commission's website.
As an African American woman, Hooper challenges the stereotypical image of the boardroom as a cloister for white males.
"Diversity is prized by boards," Karen Brenner, a corporate governance expert and professor at NYU's Stern School of Business, said in an interview in August. "There are fewer minorities in the field, so they tend to be more in demand."
9. Carol Bartz - Cisco, Netapp, Intel - 42.8 percentage-point average annual outperformance
Best known as the short-lived head of Yahoo! (YHOO) from 2009 to 2011, Carol Bartz was deemed the "most overpaid" CEO by proxy firm Glass-Lewis in 2010 when she received $47.2 million for her first year of work at the company.
While Bartz's legacy at Yahoo has been much debated, both by her and Yahoo investors, her work as an independent director for tech firms has seen much rosier returns. When she started on the board of NetApp (NTAP) in 1995, the shares of this Sunnyvale, Calif.-based data management company cost $1.28. When she left in 2009, they were at $15.40, though they hit a high of $148.63 during the dotcom bubble of 2000. During her time at NetApp, the company's stock beat the market overall by an average of 80 percentage points every year.
Bartz's time on Cisco's (CSCO) board, which continues today, is nothing to shake a stick at, either. Since 1996, the stock has almost quadrupled in value, while the DJIA is up only 170%. On average, Cisco has beaten the market by a little more than 5 percentage points a year during Bartz's directorship.
Bartz is also known for her success at software-maker Autodesk, which she led as CEO from 1992 to 2006. The company saw huge growth both in revenue and share price during her tenure, though Autodesk did not factor into our calculations.
8. Rodger Lawson - E*Trade, UnitedHealth Group - 46.9 percentage-point average annual outperformance
Rodger Lawson rose in the ranks of the financial services industry, with stints at Dreyfus, Van Eck Global and Fidelity Investments. He started as an independent director at E*Trade (ETFC) in 2012 and at UnitedHealth Group in 2011. Since then, the stocks of those companies have gone gangbusters.
E*Trade shares, while nowhere near their dotcom-era high of $577.50, have tripled in value to $28.75 from $9.21, with the DJIA climbing only 34% in the last three years. UnitedHealth has outperformed the market annually by 34 percentage points since 2011.
7. Jim Rohr - GE, Marathon Petroleum, EQT Corp, Blackrock - 47.9 percentage-point average annual outperformance
A prolific director, Jim Rohr has sat on the boards of more than 10 public and private companies throughout his career, many of which have skyrocketed in value under his watchful eye. In fact, there are a couple of notable omissions from our calculations due to technicalities, such as his time with Allegheny Technologies, which was removed from the S&P 500 earlier this year.
Remarkably, every single one of his boards that met our criteria has outperformed the DJIA. In fact, only PNC Financials, the company he led, fell short of the broader market.
The biggest success story for Rohr is BlackRock (BLK) , whose stock increased 2,172% to $319 from $14 since Rohr started there in 1999. By comparison, the DJIA is only up 60% since then.
EQT (EQT) , a natural gas producer, is another badge of honor for Rohr. EQT stock has increased more than six-fold in value to $48.57 from $7.53 in the almost 20 years that Rohr has been on the board. The DJIA has only tripled in that time.
6. John L. Hennessy - Cisco, Alphabet - 58.6 percentage-point average annual outperformance
If famed entrepreneur and investor Marc Andreessen calls you "the godfather of Silicon Valley," you'd better have the track record to back it up.
John Hennessy certainly does. He's the current president of Stanford University, has pioneered research in computer science and has served as an independent director to companies that have beaten the DJIA by an average of almost 60 percentage points every year during his tenures.
Those companies are Alphabet (GOOG) and Cisco. While Cisco has underperformed the market since Hennessy started there in 2002, his time at Alphabet has seen its stock climb by more than 1,300%. Since 2004, shares of Alphabet are up to $745.29 from $50.
5. Maynard Webb - Visa, Salesforce.com - 59.2 percentage point average annual outperformance
The feather in the cap of Maynard Webb's board service is without a doubt Salesforce.com (CRM) , the San Francisco-based cloud computing and marketing company. During Webb's tenure on the board, shares have risen 822% to $77.03 from $8.34.
Webb has his fingers all over Silicon Valley. He's currently the chairman of Yahoo! (YHOO) and previously was the COO of eBay (EBAY) and CEO of privately held LiveOps, which manages social media for companies such as Yum! Brands' (YUM) Pizza Hut and Electronic Arts (EA) . He's also the author of a book on entrepreneurship, in which he describes himself as a "doer, not a dreamer."
"At IBM," Webb reminisces in his book, "one of my early jobs in computer security was [...] breaking systems. That was a very cool job. I would be sent to a location, given general access to the systems, and told, 'See what you can do.' With that mandate, I was able to confiscate highly confidential documents, take over operating systems, and once even cut a check for a significant amount of money. (I returned it.)"
During Webb's time as a director, Salesforce has bested the market by 85 percentage points annually, while his tenure at Visa has yielded stock outperformance of 32 percentage points a year.
4. Sue Desmond-Hellmann - Facebook, Procter & Gamble - 61.7 percentage-point average annual outperformance
Dr. Sue Desmond-Hellmann doesn't have the typical resume of a Fortune 500 director. She's a doctor who practiced medicine in Uganda, and got flack for owning Altria (MO) stock, the parent company of Philip Morris USA, while leading a medical institution that specializes in tobacco control. She's now the head, not of a company, but one of the largest philanthropic organizations in the world, the Gates Foundation.
Despite her nontraditional background and skill set, Desmond-Hellmann still managed to land on the board of Facebook (FB) at the beginning of 2013. Since then, Facebook shares have jumped 278% to $104.19 from $27.52.
Desmond-Hellmann previously worked for Bristol-Myers (BMY) , Genentech and Aerogen. While her leadership experience in the corporate world is extensive, her outperformance numbers, which are limited to Facebook and don't include Procter & Gamble (PG) , which decreased during her time there, speak to the power of professional networks in determining board composition. Desmond-Hellmann has the ear of both Mark Zuckerberg and Bill Gates, two of Silicon Valley's greatest titans.
3. Sheryl Sandberg - Disney, Starbucks - 65.4 percentage-point average annual outperformance
The mantra "lean in," which was also the title of her 2013 book, transformed Sheryl Sandberg from a little-known tech executive into a household name. The book offered advice, mainly to women, about how to be a leader in the workplace, and while it met with mixed reviews, it was founded on some serious accomplishments.
While Facebook has risen 224% to $104 from $32.06 during her time as COO of the company, her track record as an independent director is just as impressive. Disney (DIS) has climbed 213% to $105.90 from $33.81. And Starbucks (SBUX) jumped 382% to $26.90 from $5.58.
For a Silicon Valley executive, Sandberg's board memberships are impressively diverse. She's not just piggybacking on the ascendant tech sector, as some others on our list have done: Disney is the unchallenged monarch of the media and entertainment space, and Starbucks is the consumer discretionary stock par excellence.
Sandberg's network of companies is definitely one for growth investors to keep an eye on.
2. Gail Wilensky - UnitedHealth, Quest Diagnostics - 87.7 percentage-point average annual outperformance
When health economist Gail Wilensky started on the board of UnitedHealth, shares were trading at $4.01. Today those shares are worth just over $116.90. That's an increase of about 2,809%. Compared to the market as a whole, that's more than a 100 percentage-point average outperformance every year since 1993.
Shares of Wilensky's other company, Quest Diagnostics (DGX) , are almost as impressive. Since 1997, they've risen 1,303% to $71.05 from $5.06, beating the market by an average of 65 percentage points annually.
In addition to her time on boards, Wilensky was the head of Medicare during George H.W. Bush's administration. She's also worked with Project Hope, a health outreach organization.
Wilensky's combination of experience both in corporate America and in the federal government should be a beacon for investors following the healthcare industry.
1. Scott Cook - Procter & Gamble, eBay, Amazon - 160.8 percentage-point average annual outperformance
Worth a cool $1.91 billion, Scott Cook founded Intuit (INTU) , which makes accounting software QuickBooks and TurboTax and pulled in more than $4 billion in revenue in 2013. He's got an MBA from Harvard Business School and was #375 on the Forbes list of the 400 richest Americans for 2015.
Cook has been notable for picking opportune moments to join companies as an independent director. For Silicon Valley giants such as Amazon (AMZN) and eBay (EBAY) , that's the same thing as getting in early. Cook joined Amazon's board in January of 1997 when the stock was just $1.57. When he left in 2002, it was 12 times above that price at $18.91. Can you imagine if he were still on the board, with Amazon stock now at $663.67?
But that's not even Cook's best-performing board membership. That would be eBay, which climbed more than 3,400% during his tenure to $66.29 from $1.87 between 1998 and 2015. The DJIA over that time did a little more than double.
For investors looking to keep tabs on Silicon Valley and its seemingly unending value propositions, Scott Cook's network of companies and connections should top their list. He deservedly tops ours.