[vc_row][vc_column][vc_column_text]by Harvard Business Review Staff

More than 15 years ago the management writer Jim Collins introduced the flywheel as a metaphor for the enduring power of strong business leadership.

A company doesn’t shift from “good to great” overnight, he wrote in his 2001 book of that name. Rather, it achieves excellence by “relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough, and beyond.” And once that flywheel starts spinning, Collins said, it tends to keep going.

The power of momentum is evident in the 2017 ranking of the world’s best-performing CEOs, a list that is remarkably consistent with last year’s tally. Two of this year’s top three CEOs were among the top three leaders in 2016, and 16 of the top 25 were in the top quartile. Seventy-two of last year’s 100 leaders are repeats, and 23 are appearing for the fourth straight year. Of the 28 CEOs who fell off the list after last year, 11 retired from their companies. (Most of the rest, including the CEOs of Heineken and Vodafone, dropped off because of a significant decline in stock price.) On average, these 100 CEOs generated a 2,507% return on stock (adjusted for exchange-rate effects) during a 17-year tenure, for a 21% average annual return.

There are reasons for this consistency. Unlike rankings that are based on subjective evaluations or short-term metrics, this list relies on objective performance measures over a chief executive’s entire tenure—numbers that often hold steady.

This year’s top performer—his first time in that spot—is Pablo Isla of Inditex, the parent of the retail fashion chains Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, and Uterqüe and of the housewares retailer Zara Home. Since becoming CEO, in 2005, Isla has led Inditex on a global expansion during which the company has opened, on average, one store a day. That growth has increased its market value sevenfold and made it Spain’s most valuable company. Colleagues describe Isla’s management style as humble and at times almost shy. Although he spends much of his time traveling to visit stores, he rarely attends store openings, choosing to avoid the limelight. At headquarters he prefers management by walking around over holding formal meetings—part of his attempt to maintain an entrepreneurial, small-company culture even as the firm has grown very large.

Among apparel retailers, Inditex stands out for two things: Its success in helping consumers easily migrate between physical stores and online shopping, and its “proximity sourcing” system, under which more than half of production takes place close to home. This allows it to keep inventories low and jump on trends to get new merchandise into stores quickly.

Measured on financial returns alone, Isla comes in 18th in the ranking; his company’s performance on environmental, social, and governance (ESG) factors, which count for 20% of a leader’s score, propelled him to the top spot. ESG-rating firms praise Inditex’s transparency in managing, monitoring, and auditing its supply chain. The company encourages consumers to bring worn-out clothing to its stores for recycling (in Spain it runs an at-home-pickup recycling program), and the Join Life brand of Zara, its largest chain, is produced using recycled fibers and with careful attention to the consumption of water and other resources.

20 of the CEOs lead companies based outside their countries of birth On average, they became CEO at age 44 and have been in office 17 years 29 have an MBA 32 have an engineering degree Only 2 are women 81 are insiders

If we judged CEOs solely on the basis of financial performance, the top-ranked leader would be Amazon’s founder, Jeff Bezos, who topped the list in 2014 and has been the best financial performer in every subsequent year. Since 2015, when ESG ratings became a factor in the ranking, Bezos has climbed from #87 to #76 to #71. To be sure, Amazon’s ESG ratings remain low: This year 88% of global companies scored higher on ESG measures. But those ratings are improving. The company’s massive Web Services division generates its own solar and wind energy. And in the past two years Amazon has hired several seasoned sustainability executives, creating optimism about changes likely to come.

Although all investors of course pay close attention to financial performance, there’s evidence that many are beginning to watch ESG measures carefully, too. Earlier this year Amir Amel-Zadeh of Oxford University’s Saïd Business School and George Serafeim of Harvard Business School published the results of a survey of 413 investment executives, whose firms collectively manage $31 trillion in assets. Half reported using ESG information because they believe it is material to investment performance, and nearly half said they believe that a company with a high ESG score is a less risky investment. Today money managers most frequently use ESG scores as a negative screen—they decline to invest in companies that have very low scores—but the managers surveyed said they expect that more investors will seek high-scoring companies over time and will use the scores to urge companies to do better. “Overall, the evidence in our sample suggests that the use of ESG information is driven primarily by financial rather than ethical motives,” the researchers write.

The CEOs listed deserve praise for excelling in both arenas.[/vc_column_text][vc_toggle title=”” style=”text_only” open=”true” el_id=”1509361937399-d3360c22-2fb0″]

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