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Why you should check out a company's CEO before investing in shares

by , 02 July 2015

The CEO (chief executive officer) is the person at the top of a company. He is the face of the business.

When you're investing in a company, it pays to take time to check out the CEO. A bad CEO at the helm means problems could be looming.

So what should you look out with a CEO of a listed company?

Read on to find out…

The essential qualities of a CEO

A CEO should excel at running a business. He shouldn’t be in the position if it’s because he knows the right people or is good at managing office politics.

So what are the signs of a good CEO?

A CEO who doesn’t focus solely on the company’s share price

CEOs will always complain their share price is too low, Paul Mampilly in Daily Wealth explains.

Instead of trying to convince investors of the merits of a higher price, a CEO should focus on building shareholder value for the long-term. A CEO shouldn’t focus on the short-term movements of the company’s share price.

If he is looking to the short-term, this isn’t good for business. Short-term decision making tends to be bad news for long-term returns. If long-term returns suffer, the share price will fall.

A CEO who answers a question directly and concisely

In some ways a CEO can behave like a politician and never seem to answer a question in a straight and direct manner. A CEO shouldn’t have to use elaborate language and confusing terminology to get a response across.

A CEO should answer each question clearly without any technical jargon.

If he can’t do this, there’s a chance the CEO doesn’t know his business very well. This is also a worry.

Watch out for the CEO who worries about short-term share price performance at the expense of the long-term future for the company and shareholders, and hide problems with fancy language.

This type of CEO could destroy your long-term shareholder wealth.

So there you have it. Why you should check out a company’s CEO before investing in shares.

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Why you should check out a company's CEO before investing in shares
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