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Executive Leadership Traits and Values Are Key in Investor Evaluation
By Stephen T. McClellan
Author of Full of Bull (Updated Edition): Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio

A critical aspect of Wall Street and investor appraisal of a company entails evaluating management: gauging executive leadership, quality, character and values. Top management is a linchpin behind any true, long-term equity investment decision. In my book, Full of Bull, I devote an entire chapter to executive traits as a revealing investment yardstick. Surprisingly, executives, who have an inordinate influence on their stock price, often transmit the wrong signals and act improperly with investors. Such executive demeanor speaks volumes to investors.

Investors Look for Favorable Leadership Traits

Candor, Access. Executives gain credibility by being forthright, and freely discussing negative cross currents and challenges. Management must be open, available, and responsive to Wall Street and investors, not evasive or secretive.

Humble, Genuine. Executives should be modest, unassuming and even self-deprecating. They should be real, not pompous. Warren Buffet comes to mind. He schmoozes with the little guy, eats hamburgers with Bill Gates in the local diner and speaks with brutal frankness. Executives should willingly admit mistakes and alter course. No one is perfect or invincible.

Trust, Quality, Class. Management must be honorable; its comments reliable, and actions straightforward. It should act with class and not be litigious, vindictive, shady or sleazy. Investors need to be able to trust executives to the core.

Hands on, in Touch. Executives should be aware of what is occurring within the company at several levels, be in contact with the little people and not buffered by multiple management levels. Ross Perot was a master at this, chatting with his lowest-level associates in the elevator and in the cafeteria. John Chambers at Cisco engages all strata of employees.

Outgoing, Aggressive, Confident.
Yes, these attributes can co-exist with humility. Executives should not be shy, inward or parochial. There needs to be a certain toughness, assertiveness and conviction as long as there is the realization of vulnerability.

Old-Fashioned Business Values. Management should be long-term oriented, use no stopgap acts to boost immediate earnings, have a certain discipline and avoid overpaying for acquisitions. They should not have sumptuous headquarters or ostentatious perks. They should care about low-level employees and small clients.

Undesirable Executive Behavior Is Off-putting

Dodging Culpability. Does management assume responsibility for negative setbacks? Does the buck stop with them? Or do they deflect responsibility? Blaming outside causes beyond management's control -- the economy, foreign currency, government, irrational competitor pricing, consumer spending, interest rates, etc. -- is highly damaging to executive credibility. When Krispy Kreme Doughnuts lowered its earnings guidance and indicated an SEC investigation was in progress, it attributed slower sales to the low-carbohydrate diet craze. It was curious that Dunkin' Donuts incurred no such weakness.

Dictator Surrounded by Yes-Men. CEOs or chairmen who are tyrannical dictators, sticking their noses in every detail, encircled by weak, wimpy yes-men, are likely to hit a brick wall. They chase away real talent and effective leaders. Overly domineering autocrats create a vacuum in the management ranks. The company outgrows them.

Doing Too Much, Lacking Focus. Leaders should not be spread too thin, travel too heavily, or make too many speeches or appearances. They cannot work effectively on the road. Talk and rah-rah boosterism with employees and clients ring hollow; often they are a substitute for the hard work of running the company. Executives need to concentrate on one or two big aspects, not try to do scores of tasks.

Hubris, Ego, Overconfidence. Company leaders should not be arrogant -- no attitude or egos, hype, or PR baloney. Excessive pride is a setup for a fall. Too much ego is blinding. Roger Lowenstein of The New York Times said it best: "Hubris is not the worst crime -- merely the one that guarantees the surest retribution." A superior peacock posture engenders hazardous attitudes, such as believing that a strategy is foolproof, overlooking competition or not listening to clients. Surprise setbacks are sure to follow.

Hype, Marketing, All Show. Executives prominently featured in their own company advertising campaigns represent a red flag. Full-page ads and splashy airport billboards bother investors. EDS ran a massive promotion with Super Bowl commercials, justifying the blitz as "air cover for the sales force." The company later floundered and that chairman was replaced. Carly Fiorina featured herself in Hewlett-Packard ads and was later dismissed by the board. Beware of over-the-top hype and executive-centered publicity.

Stock Price Fixation. When the daily stock price is displayed at the corporate entrance check-in desk, in the employee cafeteria, at analyst meetings and on conference calls, it connotes a short-term executive mindset. Executive discussion of stock valuation is repulsive. It indicates they are managing the stock price instead of the company. Funny how when the share price is skyrocketing, executives take full credit for their brilliant vision, strategy, and execution and never account for a bull market or a favorable industry sector. For some reason, after the price plummets their stock prattle is muted and the stock quote is no longer widely displayed around the office.

Designer Suits, Fingernail Polish, Flamboyant Attire. Investors are wary of executives who are overly coiffed, with fingernail polish, monograms, big rings, and fancy designer suits, who look as though they just walked out of the salon. Too much emphasis on appearance is a turnoff. These types lack substance and genuineness. Other affectations or cutesy personal marks such as male ponytails are also a no-no. Investors prefer to see success demonstrated through actions rather than with fancy accouterments.

Investors and Wall Street are constantly judging executive leadership aptitude and appraising management prowess to determine a company's prospects. Little things mean a lot. These factors are an important influence on a company's stock price.

©2009 Stephen T. McClellan, author of Full of Bull (Updated Edition): Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio

Author Bio

Stephen T. McClellan, author of Full of Bull (Updated Edition): Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio, was a Wall Street investment analyst for 32 years, covering high-tech stocks as a supervisory analyst. He was a First Vice President at Merrill Lynch for 18 years until 2003, and ranked on the annual Institutional Investor All-America Research Team 19 consecutive times, The Wall Street Journal poll for 7 years, and has a place in the Journal's Hall of Fame. From 1977 to 1985, he was a Vice President at Salomon Brothers and before that held a similar position at Spencer Trask for 6 years. Before commencing his Wall Street career, he was an industry analyst with the U.S. Department of Commerce. From 1964 to 1967, the author served as an operations officer aboard the USS Suffolk County (LST-1173) in the U.S. Navy.

Mr. McClellan has a Chartered Financial Analyst (CFA) designation, is a member of the New York CFA Society and the CFA Institute, was President of the New York Computer Industry Analyst Group, and was President and Founder of the Software/Services Analyst Group. He has made television appearances on Bloomberg TV, FoxBusiness News, CBS, CNN MoneyLine, CNBC, and Wall Street Week. He has conducted several radio interviews on such programs as Bob Brinker's Moneytalk and given presentations to numerous organizations, at conferences, and to companies. Mr. McClellan has published articles in the Financial Times, The New York Times, Forbes, and other publications. His MBA in Finance is from George Washington University and his BA is from Syracuse University.

For more information please visit www.stephentmcclellan.com.