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By Jason Stipp | 01-04-2012 04:00 PM

A Wholesale Win for CEO of the Year

In a sector where manager skill is critical, Costco CEO Jim Sinegal has added tremendous value for his employees, customers, and shareholders.

Jason Stipp: I'm Jason Stipp for Morningstar. Morningstar named its 2011 CEO of the Year Award winner on Wednesday: Jim Sinegal, CEO of Costco took those honors.

 Here with me to talk about the selection process is Morningstar's Paul Larson, editor of Morningstar StockInvestor and an equity strategist, and R.J. Hottovy, he is working on our consumer team as an analyst.

Thanks for joining me, guys.

Paul Larson: Thanks.

Stipp: Paul, if you could start out and tell us a little bit about some of that broad pillars that go into the CEO of the Year decision. What factors must a CEO meet in order to even be considered for this award?

Larson: Well, one of the things that we're looking for is someone that has had very good stewardship of the entity that they've run. This means having a reasonable compensation, also having incentives [so] the management and shareholders are aligned. Another thing that we're looking for is someone that's added value--both intrinsic value for the company as well as widening the moat, so to speak--and I think Jim Sinegal certainly applies here.

Stipp: So, how do you measure that value-added? What metrics do you look at to see if a CEO is really adding value for a company over time?

R.J. Hottovy: In the retail industry, we're really looking at a few metrics, such as, in this case, really market share. And frankly in the last 20 years, outside of Amazon, we can't find any other situation where we found such a disruptive retailer. Under ... Jim Sinegal's stewardship, Costco has really redefined the retail business, and kind of turned it on its head. Before he came around, the warehouse club model really didn't exist, and now here they are, the third-largest retailer in the U.S., with approximately $65 billion in revenue each year.

Stipp: I want to talk about some of the specific challenges in retail in a moment, but before we get there--Paul, just broadly, as you're looking at 2011, what kind of a year was this for the managers of companies? How tough was it? Obviously, it wasn't a 2008, but there were some bumps along the way last year.

Larson: We did have some headwinds. The sovereign debt situation in Europe as well as here in the United States, frankly. We had the Japanese tsunami, negative headlines. So we had a scared consumer, but this was actually a little bit of a cyclical tailwind for Costco, because consumers are trying to stretch their dollars, and Costco is certainly one way that they can do so by going there and benefiting from the low prices that Costco gives them.

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