How do you evaluate the CEO of a company you’re considering investing in? Do you have any must-research criteria, must-haves, or red flags you look for? How much weight does CEO evaluation carry in your decision to buy a stock or pass?
From both my professional experience and my investing perspective, I believe having a strong C-suite in general, and a great CEO in particular, is critically important. Recently, while reading various investing and trading discussions on Reddit, I’ve often seen people mention how good a CEO of one of the space-related companies is. However, I rarely see any concrete details explaining *why* and I still have cold feet about jumping into the stock.
Personally, I’ve worked at a few mid-size companies that became quite successful at one point but were eventually ruined by their CEOs. Two major problems stood out:
**Nepotism and loyalty over competence.** CEOs promoted friends, friends’ relatives, and early-day coworkers into increasingly senior roles. These people lacked the qualifications and potential required for such critical positions and failed badly. They literally wasted hundreds of millions and even billions of dollars in a several years and that was the point of no return for these companies.
**Excessive ego and attachment to failed ideas.** These CEOs couldn’t let go of their certain scientific “babies” - ideas they had nurtured for a long time, despite clear evidence they wouldn’t work. When the companies were short on cash, those ideas were kept on hold. But once the core business became profitable, money was poured into this nonsense. Even worse, professionals who clearly identified the flaws were treated negatively, while unqualified yes-men who praised these ideas and blamed failures on employees rather than the ideas themselves were promoted into senior management.
But how can I identify these problems not being inside the companies?