Eighth Annual CE Growth 100 Index.

Riding the wave to high stock price growth takes more than the right wet suit and a shiny new board. Especially on a sea that never crests.

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For a week or so in March, the Dow flirted with 10,000 - on again, off again, advancing, retreating, never quite ready to take so bold a step. Then finally, on Monday, March 29, the closing bell rang with the great barometer stuck at 10,006.78, and the celebrations began. Cheers on the floor. Hoopla on the finance-heavy evening news. Banner headlines in the Wall Street Journal.

But the point wasn't so much that this measure of measures had quadrupled in just over a decade. It was that suffers on America's economic tsunami were continuing to stand tall despite situations around them that would have toppled lesser corporate athletes in other eras. An Asian crisis. An impeachment. Instability in Europe. Financial turmoil in Brazil. Which of these daunted the American corporate surfer? If the Dow is to be believed: none of the above. The wave keeps roaring, with no shore in sight.

And it's not just the Dow that's climbing higher. Check out today's hot IPO - and yesterday's, and the day before's. Check out Interactive Week's Internet Index (up some 41 percent since January 1). And take a look at the 100 companies on this year's CE Growth 100, the 100 corporations that have experienced the highest stock price growth over the last three years - six of them breaking 1,000 percent growth during that time period. The 1999 CE Growth 100 (compiled for Chief Executive by Mitchell and Company) are not just technology companies, though they're there in force, but biotech firms, financial services firms, supermarket chains, office-supply stores, furniture manufacturers, book stores, and even the once-dowdy Maytag.

What's going on? Is this a wave that will carry any company that comes to market? Not quite. For a close look at several high growth companies (see page 42) and conversations with analysts indicates that success depends on more than the proper wet suit. And more than catching the wave at just the right moment.

Jake Dollarhide, of Frederic E. Russell Investment Co., credits leadership: "A strong management team with depth and competence in each person is necessary to make the business grow." Adds Donald Hagen, CFA, "The people on the Street recognize that if a company builds a strong management team, the executives will be candid, which leads to growing shareholder wealth."

It's the candor that appears to be key. And candor built of honest communication - with employees, customers, directors, the Street. As John Babyak of WHB/Wolverine Asset Management puts it, "Companies have relationships with investors. Honesty, credibility, and trust are the foundations." Keeping this foundation solid, suggests Clark Kendall, of Rothchild/Pell Rudman, means not just telling investors what you think they want to hear: "Time after time," says Kendall, "management shares its plan with the investment community, and time after time, management does not meet the expectations it lays out."

Clearly members of the CE100 are meeting - and exceeding - the investment community's expectations, many of them time and time again. Among this year's repeat performers:

* Six timers: Tellabs' Michael Birck; Paychex's Tom Golisano; Clear Channel Communications' Lowry Mays.

* Five timers: Microsoft's Bill Gates; HBO & Co.'s Charles McCall; Robert Half's Harold Messmer; and Charles Schwab's Charles Schwab.

Michael Winkleman

CEOs Hanging Ten

DRUG DEALS

Edward V. Fritzky Immunex Carp. (Nasdaq: IMNX) Seattle, WA Years as CEO: 5 Age: 49 CE100 ranking this year: 9 CE100 ranking last year: - CEO Performance ranking this year: 91 CEO Performance ranking last year: - Annual sales 1998: $243.5 million Annual sales 1997: $185.3 million

Business strategy: This cutting-edge biomedical company bad chosen to cut itself out of profits for most of this decade, the better to invest in research and development. By honing in on immune-system biology as tenaciously as an antibody going after a specific disease, Immunex has developed several revolutionary drugs with the potential to transform treatment for various common diseases. Now, after a decade where the company's research pipeline was full but its product line largely empty (on the market were some niche cancer drugs), it is finally poised to make n sizable imprint in the fields of asthma, infections diseases, and rheumatoid arthritis - not to mention on the company's bottom line.

One recent arthritis product, Enbril, approved by the Food and Drug Administration last year, could be a $2 billion annual blockbuster. Another heading for approval, Nuvance, may alter standard treatment by helping asthmatics avoid frequent steroid use. Trials are also ongoing for antitumor, anticancer, immunodeficiency, and anti-inflammatory drugs, among other areas.

Fortunately for Immunex, its investors have been on unusually patient lot until now - willing and even eager to forego current income for future payoffs. To keep them happy, Fritzky and other top managers spend a great deal of time involving large investors in strategic discussions and eliciting their feedback on major decisions. (Pharmaceutical behemoth American Home Products owns 54 percent of the company.) Thanks largely to Enbril's sales, Immunex will finally emerge from the red this year.

View from the top: Says Fritzky: "Keeping the 'small' culture of our company has been important for us, even as we have now grown to 1,000 employees. We need to have an open, results-focused organization to keep productivity high and also to retain worldclass employees. To help cultivate that, we have a very informal dynamic where everyone can talk to anybody. Not only do I have small-group meetings with anyone who wants to attend, we also give employees 100-question surveys to measure how they fed about everything from how decisions are made to whether they believe we are open and trusting enough. This is a dedicated group: All of us here believe strongly in what Margaret Mead once said: 'Never doubt that a small group of people can change the world; it's the only thing that ever has.'"

MAIN SQUEEZE 

Peter Karmanos, Jr. Compuware Corp. (Nasdaq: CPWR) Farmington Hills, MI Years as CEO: 26 Age: 56 CE100 ranking this year: 2 CE100 ranking last year: 85 CEO Performance ranking this year: 2 CEO Performance ranking last year: 35 Annual sales 1998: $1.14 billion Annual sales 1997: $813 million

Business strategy: Outsiders might think that technology is king at Compuware, the computer services and software company co-founded by Peter Karmanos in 1973. But ask Karmanos what's most important to his strategy and the first thing he mentions is people. Top management continually reminds itself that people are the firm's most important asset, he says, and as a result they have created one of the best companies to work for in America (as Fortune recently dubbed it). Of course, product is important also: Compuware now has 90, including debugging, fault-analysis, and systems management software - along with a computer services business.

Other items that are key for Karmanos: focus, especially important in a high-tech industry that is easily distracted by hype; ensuring that any newfangled technology has a pure business objective and not just exquisite bells and whistles; staying a bit behind the technology curve because there is no insurance policy that comes with being first and no downside to being second; and using inductive reasoning when plotting strategy rather than listening to the so-called experts.

Those "experts" once thought that Compuware's mainframe client base would crash once networks and PCs firmly took hold. Karmanos thought otherwise, deducing that new technologies simply allow for new uses and would not replace the mainframes into which corporations had already poured billions of dollars. Figuring that mainframes are like industrial strength Mack trucks, he couldn't imagine that they would disappear just because "cars" or "minivans" entered the market. While Compuware developed products for corporate networks, it never abandoned mainframes, which today accounts for a healthy part of its more than 33 percent annual rise in sales.

Being in the right place at the right time, especially as Y2K approaches, has also helped the company, but here again Karmanos stresses the value of inductive reasoning. Deciding that companies were going to be strategic about checking for problems rather than simply converting all their code as some had predicted, Compuware developed a data-aging program to fast-forward the time and allow companies to easily identify troublespots.

View from the top: Says Karmanos: "We have succeeded largely because, in thinking through the industry, we developed a good, solid strategy and an execution-focused management team rewarded like our shareholders. (A lot of good fortune is also important - being in the right place at the right time.) To communicate with my team, I try hard to have face-to-face conversations as often as possible. I haven't written a memo in years. When you're actually talking to someone, you know far certain whether you're communicating - or whether you're not."

DESK DRIVE

Michael A. Volkema Herman Miller (Nasdaq: MLHR) Zeeland, MI Years as CEO: 4 Age: 43 CE100 ranking this year: 53 CE100 ranking last year: - CEO Performance ranking this year: 39 CEO Performance ranking last year: - Annual sales 1998: $1.72 billion Annual sales 1997: $1.5 billion

Business strategy: In the four years since Volkema and his management team took over, the office furniture maker certainly hasn't put those proverbial feat up on the desk to rest on past practices, even in the face of strong domestic office furniture demand. Instead, management has busily shifted the company's focus to the most profitable venues and away from activities that were done simply because they had always been in the 70-plus years the company's been around.

In on effort to enlarge its market, the company embraced the opportunities afforded by new technologies, such as by being the first in its industry to sell its wares online and by equipping salespeople with laptop computers so they can configure and order right at the client's work site. It closed unprofitable plants and warehouses and has better leveraged human and financial resources so square footage at the company is actually down 15 percent during the four years that revenue rose approximately 70 percent. And it has focused on providing the full range of what customers require, from the fast-growing entrepreneurs who need simple, quick, and affordable furniture (those initials form the acronym of new subsidiary SQA), to the large multinationals which, in greater numbers, are outsourcing the design and reconfiguration of work environments to on-site Herman Miller employees around the world. One area Herman Miller hasn't yet mastered is international: Volkeme admits a "winning formula" for beth himself and his competitors has so for remained elusive.

The company adopted EVA as a measurement tool in 1996 and linked employee incentive-based compensation to it, which has shifted the staff's focus to long-term improvements and the creation of economic value.

Despite the many changes, Herman Miller has not altered its passionate commitment to its employees (although it did lay off some employees during the reorganization). Named in the book, The 100 Best Companies to Work for in America, the firm has long highlighted workers' satisfaction. It was a pioneer in employee participation and gain shoring back in 1950; today, employee stock ownership has been boosted to 16 percent, from 10 percent several years earlier, with o goal of reaching 25.

View from the top: Says Volkema: "One of the things we did as a leadership team was to come up with five value statements; creating shareholder value is one of them. We say we are beth serious about business and serious about people. We're also serious about technology. We are reinventing and aligning our capabilities by deploying new technologies. I don't know anyone who leads their industries who doesn't lead in the technology to support their work."

CHECK MATE

B. Thomas Golisano Paychex (Nasdaq: PAYX) Seattle, WA Years as CEO: 28 Age: 57 CE100 ranking this year: 57 CE100 ranking last year: 52 CEO Performance ranking this year: 31 CEO Performance ranking last year: 74 Annual sales 1998: $993 million Annual soles 1997: $735 million

Business strategy: Since death end taxes are inevitable, Paychex figures it might as well make money off the latter. In the last seven years, this payroll services provider, second in size only to ADP, has introduced a host of additional products for its customers, including electronic filing of payroll taxes.

Consistently high revenue growth via these ancillary products has helped Paychex remain a Wall Street darling - in fact, Paychex is one of only a handful of companies repeating on the CE 100 list for six straight years. And the company sees a bright future ahead: its 320,000 business customers represents less than 6 percent penetration of the market. With a fixed cost structure, revenue increases quickly grow the company's profits. As Golisano notes, if the company increases some 18 percent on the top line, the bottom line swells by 25 percent.

This decade's trend toward outsourcing has greatly helped Paychex, which, since its founding by Golisano in 1971, has targeted the small- and mid-sized businesses other payroll service clients long ignored. So, too, have increasingly complex laws, from ERISA to cafeteria plans to COBRA, which have caused more than one small business accountant to throw up his hands and seek professional help. With 16 new products added in the past seven years, Paychex can now offer these businesses wide-scale assistance, including direct deposit, employee handbooks, group insurance management, and 401 (k) administration. The latter is proving one of the most popular; with the information from processing a client's payrolls already in Paychex's computers, it can easily and accurately add the 401(k) information.

Not surprisingly, employee morale is upbeat in these flush limes, and Golisano says it's important to him to ensure it stays that way.

View from the top: Says Golisono: "Seven years ago we were product poor, with only one product. Now we're product rich, which benefits everyone. Take our state payroll payment program. Clients love it because they don't have to save the money to pay their taxes; the state tax people love it because taxes are paid electronically, on time, and accurately, and we love it because it's a revenue enhancer. Selling to existing clients is easier than selling to new customers. Plus, having so many products has also helped us with client retention."

EATING THEM UP

Robert G. Miller Fred Meyer (NYSE:FMY) Portland, OR Years as CEO: 8 Age: 55 CE100 ranking this year: 18 CE100 ranking last year: - CEO Performance ranking this year: 69 CEO Performance ranking last year: - Annual sales 1998: $14.9 billion Annual sales 1997: $7.4 billion

Business strategy: Having entered the supermarket business as an after-high-school home sorter, Robert Miller knows that in this industry, size does matter. So his Fred Meyer entered 1997 with a mission: to position the company as a bigger supermarket player and to acquire other chains as a way of increasing shareholder value.

Before that year, Fred Meyer had bean known mostly for its multi-department stores' unusual mix of furniture, jewelry, home electronics, apparel, and groceries, among other items, and for its innovative and trendy in-store bath boutiques, pet centers, and sushi bars. The company also owns a profitable jewelry business, which Miller expanded with acquisitions in '96 and '97. But in 1997 and 1998, the company went on an unprecedented grocery shopping spree, quickly snapping up Smith's Food and Drug Centers, Quality Food Centers (QFC), and Ralphs. Suddenly, the little Pacific retailer was the fifth-largest supermarket operator in the U.S. The stock market rewarded the moves, allowing Miller to invest in the most modem information systems while spreading the cost over hundreds more stores.

Ironically, Miller noted in his 1997 annual report that "in an industry undergoing rapid consolidation, we knew we could either acquire, or be acquired." Early this year, Fred Meyer's feverish acquisition strategy mode it n desirable target for the Kroger Co. supermarket chain - now the first national supermarket operator in the country. The new entity is headed by Kroger CEO Joseph A. Pichler (No. 69 on the CE100 list), with Miller serving as vice chairman and COO.

View from the top: Says Miller: "In late 1996 we hod to determine what direction to take going forward. We felt good about the Fred Meyer stores, but our stock price was undervalued and people didn't understand the company; it was hard to describe what we were. My background was in food, and we saw a way to leverage that experience with acquisitions. And since our goal all along was to create shareholder value and take care of our employees, merging with Kroger fit into the strategy as well. Both companies enter this combination from positions of strength, having consistently achieved their growth targets while increasing efficiencies and improving margins."

COMING CLEAN

Leonard A. Hadley Maytag Corp. (NYSE: MYG) Newton, IA Years as CEO: 6 Age: 65 CE100 ranking this year: 82 CE100 ranking last year: - CEO Performance ranking this year: 8 CEO Performance ranking last year: - Annual sales 1998: $4.1 billion Annual sales 1997: $3.4 billion

Business strategy: When he took over as CEO in 1993, Leonard Hadley realized that, for the first time in decades, Maytag had to make money the aid fashioned way: by earning it. With inflation basically wrung out of the American economy, the No. 3 American appliance maker (in unit sales) could no longer count on automatic price increases to up its revenue stream. So he refocused the company towards innovation, prodding the appliance and floor-care teams to develop unique features that customers would be willing to pay a premium for, and doubling capital expenditure.

The results have been such unique offerings as the Hoover WindTunnel - one of the fastest selling products in Hoover's history - and the front-loading Neptune clothes washer, a highly profitable machine so original it helped the company land its products in Sears' showrooms.

Hadley also decided to buck the prevailing wisdom that global is glorious. After years of flailing efforts in Australia and Europe, he accepted the reality that appliances do not easily translate across countries and that the costs of designing and making appliances for each market were simply not worthwhile. Though Wall Street was initially skeptical, he pulled out of Europe. That's not to say that Maytag stopped looking at potential international opportunities: it developed a joint venture in China, for example, to service this fast-growing market.

Maytag has also worked to further diversify its product line. Though it is still mostly associated with the washing machines it first introduced in 1903, the company has expanded its presence in commercial markets, such as by acquiring G.S. Blodgett, o leading manufacturer of food-service cooking products. Today about half the company's operating income comes from businesses beyond the major appliance line. With Hadley set to retire in August, many believe his altering the company's direction will help him be remembered as the true Maytag repairman.

View from the top: Says Hadley: "The responsibility of every CEO is to look over the assets end devise a game plan from that. If John Elway is on my team, I will hove a very different game plan than if he is not. You hove to take it how you find it and try to put your fingerprints on it. We hod wonderful products, but we needed more innovation. Putting 'the monkey' back on product planning and product development people to find innovative product performance attributes was a challenge, but people love this kind of challenge. After a couple of successes, they saw that it works. What was earlier a top-down-directed change of direction is now being inculcated at the lower level, by virtue of pride and success, not to mention stock options, which for years were worth nothing here. It did take time for the stock market to recognize that our strategies would work, but the investment community has finally come around to supporting our marching to o different drummer, in thor we aren't a low-cost player and aren't going global."

LUCK OF THE IRISH

Thomas P. Mulcahy Allied Irish Banks, p.l.c. (NYSE: AIB) Dublin, Ireland Years as CEO: 5 Age: 57 CE100 ranking this year: 63 CE100 ranking last year: - CEO Performance ranking this year: - CEO Performance ranking last year:- Annual sales 1998: $3.01 billion Annual sales 1997: $2.40 billion

Business strategy: The irish "Celtic Tiger" - the nickname for the country's strong economy - has been roaring since 1993, carrying along with it the fortunes of the Allied Irish Banks. Ireland's largest bank, which commands 22 percent of the market share in its home country and some 30 percent of its commercial banking market, saw profits in its domestic operation grow some 39 percent in the past year alone. Outsiders often don't realize the power of the Irish economy, but the country is second to America in software experts and has o multinational presence in the pharmaceutical and chemical industries.

Irish eyes have also been smiling on AIB in the form of the euro. As the only Anglo member of the European Economic Union, Ireland - and its banks - have been a natural draw for U.S. investment into the European market.

But Mulcahy has added plenty of pluck to his good luck in his successful effort to catapult the bank's revenue and stock to such lofty heights. Focusing on both geographic and product diversity, AIB boldly goes where many other banks of its size dare not. The bank has worked over the past few years to expand its product line, which now includes everything from commercial banking, leasing, and life insurance to stock brokerage, bank assurance, credit cords, auto finance, and venture-capital financing. Though some products have been offered for more than o decade, recent innovations, such as bypassing brokers and hawking many items directly to customers, has helped profitability. So, too, has on aggressive approach to training that ensures that all staffers "sell" the bank's extensive product line.

This portfolio approach also extends to the geographic reach of the institution, which seeks diversity as a hedge against economic downturns in one part of the world or another. In addition to Ireland, AIB operates in the U.S., in Britain, and in Poland.

Providing top-notch customer service and a lot of real-time information is also key to keeping its Irish customers who always hove o choice of taking their pounds elsewhere.

View from the top: Says Mulcahy: "Our product penetration has gone up 50 percent in the last three years. We have widened our product offerings and have invested greatly in training our staff. We're in everything and developing everything. Most of our branded businesses rely on our existing customer bose - which is extremely profitable due to low marketing costs. We see ourselves as very much o hands-on retail bank. There are no miracles, just a lot of hard work."

RELATED ARTICLE: Running The Numbers

To produce the latest CE100 list of companies that delivered superior stock-price gains over the prior three years - calendar years 1996 through 1998 - we drew on the expertise of the Consulting Group at Zacks Investment Research. Accessing Zacks's database of more than 6,000 public companies trading in the U.S., Mitchell and Company selected the 100 fastest growing stocks that:

* Had the same CEO in place from January 1, 1996, through December 31, 1998;

* Were public from 1994 through 1998;

* Had a market capitalization value of public common stock of at least $1.13m billion at the end of 1997.

This last measure is an annual update of our prior methodology; by matching the size of company we look at the changes in the level of the S&P 500 since the CE index was begun.

The CEO Performance Index, introduced three years ago, returns in a slightly improved form. The Performance Index adjusts for size differentials among companies to better sure the CEO's management effectiveness relative to the average scale of opportunity to grow or perform. The size scale adjustments were done by regressions of logarithms of performance variable growth or the ending variable itself versus size, dimensioned to that variable across all 100 companies. A large company ranks higher for its business performance than a smaller company with the same business performance. All CEOs on the list were ranked by an average of their individual ranks on five measures: growth in book value per share, earnings per share, equity market capitalization, return on common equity; and the ending level of return on equity. For non-financial firms, four additional measures were added: growth in cash flow per share, net margin, and revenues per shares; and the ending level of net margin. These measures were selected based on studies of superior business performance most often demonstrated in conjunction with rapid stock-price growth.

This year six foreign companies made the CE100 but could not be analyzed for a performance rank. Their data were not available from Zacks nor from other public data sources. These companies are noted by an asterisk in the CE100 ranking chart.

The rank differential comes from subtracting the CEO Performance rank from the CE100 position. Companies with a negative differential have demonstrated faster stock-price growth than business progress, compared with their CE100 peers; companies with a positive differential show better business progress than stock-price growth.

Don Mitchell 

RELATED ARTICLE: The CE100 Investment Guide

A favorite theory about the efficiency of capital markets is that so much information flows that any investment method that is publicly disclosed will soon fall to work because so many people will begin to use it. The results of our CE100 investment management methodology seem to be contrary to that theory.

From 1992 through 1998, the CE100 index has provided a total stock-price appreciation return of 223,6 percent while the S&P 500 has trailed at only 206.1 percent. This result exceeds the returns of more than 95 percent of professionally managed portfolios and indexes during that time, despite not using any derivatives or debt. The investment methodology also has a lower portfolio turnover than most investment methodologies that are popular today. All the details that anyone needs to use the methodology are published in Chief Executive annually, and maintained year-round on the Internet at www.mitchellandco.com, yet the methodology has significantly outperformed the S&P 500 on a cumulative basis since its inception.

The methodology simply requires you to buy equal dollar amounts of the 100 stocks on each year's CE100 list at the end of the month in which the list becomes available, and hold them for one year. You continue to hold stocks that repeat from the prior year, sell those that did not repeat, and buy the new stocks appearing on the next list during the following year. based on our experience to date, it is also clear that even these stellar returns could be greatly boosted by simply adding a mental or physical stop-loss to sell any stock purchased during the year that falls by more than 25 percent from the market price at the beginning of the current one-year period. Making this simple change would boost your cumulative returns to reach a rate almost 50 percent faster than the S&P 500 growth.

This investment methodology will often trail the S&P 500 for a given year or two, and then surpass it, because the S&P 500 Index is weighted by the size of the market capitalization of each stock, while the CE100 Index is an unweighted index (which means you buy equal dollar amounts in each company). As a bull market rises, the fastest gains normal y concentrate in the largest capitalization stocks so the CE100 Index will probably be at a disadvantage in the year ahead unless there is a major market correction after May 1999 and before May 2000.

We have made three consecutive attempts to locate just a few stocks among the 100 that would do the best during the following year. This has not worked well. In the first year, the short list grew by 20.0 percent while the S&P 500 grew at 26.8 percent. In the second year, the short list actually fell by 24.6 percent while the S&P 500 grew by 28.6 percent. Through December 31, 1998, last year's third short list of America Online. PairGain Technologies, PeopleSoft and Vitesse Semiconductor grew by 14.2 percent compared to a gain of 12.7 percent for the S&P 500. based on this mixed performance. we have decided to stop experimenting with selecting only a few stocks for your consideration.

Don Mitchell

Donald W. Mitchell, who has led the CE100 project since 1992, is chairman and chief executive of Mitchell and Company, a financial and management benchmarking and consulting firm in Waltham, MA, focused on how to make rapid, successful improvements in organizational performance. He also honda Outstanding CEOs, a best-practice-improving organization whose members are primarily CE100 CEOs, and Twenty Times Progress, an organization for teaching breakthrough methods for improving important management processes. He is coauthor of The 2,000 Percent Solution: Free Your Organization from "Stalled" Thinking to Achieve Exponential Success. Additional research and analysis for this article were conducted by Carol Coles, president of Mitchell and Company and co-author of The 2,000 Percent Solution, and Mitchell and Company's Joan Henson. Accompanying profiles were written by freelance writer Meryl Davids. For more information, visit www.mitchellandco.com, www.2000percentsolution.com, www.spg 100.com, and www.fastforward400.com.