How important to you are the ESG [environmental, social, and governance] issues that are part of HBR’s CEO ranking? Do they enter your minds as you manage your companies?

Sørensen: Absolutely. Everything we do has to be grounded in an assessment of not only the financial implications but whether it aligns with our values and brings us closer to realizing our purpose as a company.

Sorrell: I agree. John Browne, who used to run BP, put it simply: Doing good is good business if you’re in business for the long term. Our company is focused on the long term. We take into account every one of our stakeholders: our people, our customers, our clients, the government, NGOs, suppliers, pressure groups. Everything we say or do could appear on the front page of the Financial Times or the Wall Street Journal or in Harvard Business Review. We have to think about the implications of what we do in the broadest possible way.

Isla: It’s not only society’s or stakeholders’ demands. We believe that we are a force for good in the world. And that belief is perfectly compatible with shareholders’ interests and the bottom line.

And yet you talk about the pressure you face from people with short-term perspectives. Help me understand that conflict.

Sorrell: If you look at the S&P 500, the most powerful companies in the world returned more to shareholders last year than they earned. In other words, dividends and stock buybacks were greater than retained earnings. That means companies are becoming much more cautious in how they invest and much more short-term in their thinking. The companies that can afford to take risks are those where the executives aren’t afraid of getting booted out if they make mistakes. People are penalized too much for failure, and they’re not prepared to take risks to succeed. Tech companies that are sexy and in demand can get away with it. Traditional companies can’t.

Sørensen: In Scandinavia we have a very particular ownership structure. My company is part-owned by a foundation, which basically controls 70% of the votes. In my view this type of block-ownership structure allows for very long-term thinking. Many Scandinavian companies have become global as a result of this approach. There are pitfalls, as when boards aren’t strong enough to challenge management. But we have been able to be successful because I can say to shareholders, without fear of repercussion, that I have a long-term vision for the company.

“I’m gradually learning to be less rational and more emotional. We need to appeal to our employees’ emotions to help create an environment where they can innovate.”– Pablo Isla, CEO of Inditex

Isla: Ultimately, what’s even more important is your track record and how you build your reputation. We don’t have problems with institutional investors and short-term pressure. They know the type of company they’re investing in. They know that we’re thinking about the long term but also paying attention to the short term.

There seems to be a rise in populist agitation against business, in part over the issue of income inequality. Do you sense that?

Sørensen: The pharmaceutical industry has always been fraught with controversy. Our popularity ratings are similar to those of the arms industry and tobacco. We make money on people’s poor health. We experiment on animals. We perform genetic manipulations. So for us, there’s nothing new in this. We have had to earn the public’s trust for many, many years. And we haven’t always done a good job of it. What we need to do is be completely transparent about our objectives, to ensure that people see that we’re contributing to society and not just enriching ourselves.

Isla: We have to acknowledge that there are justifications for the distrust, that there have been many big corporate scandals. It’s up to us to be transparent, to do the right thing, to believe in what we do, to gain trust. For example, people are concerned that a lot of big companies don’t pay taxes. So we now publish in our annual report all the taxes that we pay in different geographies.

CEO pay is another lightning rod. Martin, you’ve been caught up more than once in controversy over your pay package. What’s the right way to handle an issue as volatile as CEO pay?

Sorrell: Far be it from me to lay it out, but in my view it’s important to base executive pay on long-term performance. If you don’t succeed, you should suffer. If you do succeed, you should be rewarded. Plus, we have to emphasize the net results of what we do, like creating employment around the world.

Sørensen: I agree that executives’ rewards should be based on long-term performance. But I need to raise another issue, which may be contentious, and that’s the internal cohesion of companies. When we have too wide a disparity between executive compensation and workers’ compensation, we create a barrier to the employee passion and engagement that all companies need to achieve their objectives. If there is too big a gap between what I earn and what a blue-collar worker at my company makes, it’s going to create problems. Executive compensation explains part of people’s distrust of business.

Sorrell: The only thing I’d say is that there’s a difference between CEOs who have been doing the job for 30 years versus someone who has been doing it for two years. Nobody gives people like, say, me credit for the fact that we have invested in the business—that we borrowed money from a bank or invested our own money, and retained that stock and paid tax.

Isla: Compensation has to be transparent, long-term-oriented, and really, really based on performance. Even more than closing the pay gap, it’s important to have everybody, if possible, benefiting from the evolution of the company. Last year we approved a profit-sharing plan for all employees, and I think it’s very much valued.

Every year HBR gets criticized for the scarcity of women on our CEO list. We try to explain that, first, the ranking is based on a mathematical formula, and second, it reflects the unfortunate reality that there are simply too few female CEOs out there. Why is that still the case in 2016?

Sorrell: The reason there are so few women at the top is that there are so few women at the top. Let me explain. I’ve seen the greatest traction where women are running operations, business units, or in our case agencies. Because they’re in positions of authority, they go the extra mile to attract other talented, ambitious women. But the problem is, on the whole women haven’t had enough opportunities. One other thing: I’ve said this on a number of occasions, and it may get me into trouble again, but in our business women are better than men. They’re better organized, and they have higher EQs.

Let’s talk about work/life balance. What does that mean to you, and to what extent are you trying to model behavior for the rest of the company?

Sørensen: I’m not a great role model. But it’s a complex issue. In Scandinavia we have very generous maternity leave. Now many employees are starting to complain that this benefit, which was created to protect families and mothers, is actually a hindrance to building a career. If you take maternity leave for a full year, the company moves on. And women who do that a couple of times in their thirties are unfortunately being left behind. We’re working on the right formula for developing female talent, but progress has been excruciatingly slow.

Isla: It’s difficult to find the right work/life balance as the CEO of a global company. You need to work hard and travel often. For me, the most important thing is exercising early in the morning as often as possible, which is essential for my physical and mental health. And to try to have a family life, even if I have to focus more on the quality than the quantity of time.

“If there is too big a gap between what I earn and what a blue-collar worker at my company makes, it’s going to create problems.”– Lars Rebien Sørensen, CEO of Novo Nordisk

Sorrell: I’m not a good role model, either. Ours is a 24/7 business. But my wife is about to have a baby, so this whole work/life balance thing is going to come into sharp relief again.

How would you like to be remembered at your companies?

Isla: It’s too soon to think about that personally, but I would like Inditex globally to be perceived as a company with a sustainable business model and a clear long-term approach, and as an example for other businesses.

Sørensen: My influence, through collaboration with my management team, will be assessed in 15 or 20 years, and only then will people be able to determine whether we made the right choices. Plenty of people will be willing to throw stones at us then. Again, I’m against this personal lionizing of CEOs. It’s very much a team effort. And to be honest, the success we’ve had during my tenure is due in large part to decisions that were made by my predecessor.

Sorrell: I share Lars’s view on the cult of personality. But I do think individuals make a difference. For me, I’d like WPP to be regarded as the preferred choice for any potential client looking at an advertising marketing-services problem. And that when people in our industry change jobs or start a new career, their Pavlovian response will be to think of us. I’d like to be regarded as one of the people who helped achieve that.

Editor’s note On September 1, Novo Nordisk announced that Sørensen would be stepping down in 2017.

Methodology

How We Calculated the Ranking

To compile our list of the world’s best-performing CEOs, we began with the companies that at the end of 2015 were in the S&P Global 1200, an index that comprises 70% of the world’s stock market capitalization and includes firms in North America, Europe, Asia, Latin America, and Australia. We identified each company’s CEO but, to ensure that we had a sufficient track record to evaluate, excluded people who had been in the job for less than two years. We also excluded executives who had been convicted or arrested. All told, we ended up with 895 CEOs from 886 companies. (Several companies had co-CEOs.) Those executives ran enterprises based in 32 countries.

Our research team, headed by Nana von Bernuth and assisted by coders Christina von Plate and Peggy Lam and data consultants Morand Studer and Gustavo Sophia from Eleven Strategy & Management, gathered daily financial data for each firm from Datastream and Worldscope, from the CEO’s first day on the job until April 30, 2016. (For CEOs who took office before 1995, we calculated returns using a start date of January 1, 1995, because industry-adjusted returns prior to then were unavailable.) We then calculated three metrics for each CEO’s tenure: the country-adjusted total shareholder return (including dividends reinvested), which offsets any increase in return that’s attributable merely to an improvement in the local stock market; the industry-adjusted total shareholder return (including dividends reinvested), which offsets any increase that results from rising fortunes in the overall industry; and change in market capitalization (adjusted for dividends, share issues, and share repurchases), measured in inflation-adjusted U.S. dollars.