AAII Survey: CEO Impact on Retail Investment Decision

image_pdfimage_print

For some companies, a current or former chief executive is inextricably linked. It’s difficult to think of Berkshire Hathaway without also conjuring up the name Warren Buffett. Jack Welch and General Electric. Rupert Murdoch and News Corp. Jamie Dimon and JPMorgan Chase. The list goes on and on.

Recently, a few well-known companies have seen their stock prices suffer because of the actions of their CEOs. Papa John’s founder John Schnatter stepped down as CEO in early 2018 after comments he made criticizing NFL commissioner Roger Goodell for not doing more to prevent player protests. The NFL was a key corporate partner and sales appeared to have suffered in the aftermath of the comments. Schnatter resigned as chief executive in July following the release of a recording in which he used a racial slur during a conference call with a marketing agency. Schantter subsequently sued the company he founded, contending the board did not do their due diligence in performing an investigation prior to asking him to step down. Schnatter has also been reaching out to private equity firms in the hopes of buying Papa John’s.

Tesla founder and chief executive Elon Musk has also garnered a lot of unwanted press over the last few months. An active Twitter user, Musk has raised a lot of eyebrows and even the ire of the SEC through his social media postings. On August 7, Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.” Tesla stock ended the day up nearly 11%. However, on August 13, Telsa published a blog post attributed to Musk in which he attempted to walk back his Aug 7 tweets, saying when he first tweeted his intention, it was based on his impression that there was “no question” that a deal with the sovereign fund could be closed and that it was “just a matter of getting the process moving.” On August 24, a post published on Tesla’s public blog announced that Musk had abandoned the process of attempting to take Tesla private. Subsequently, on September 27, the U.S. Securities and Exchange Commission filed a lawsuit against Musk for fraud and sought to remove him from Tesla. The SEC alleged that Musk chose a $420 price for possibly taking Tesla private because it is a marijuana culture reference that would “amuse” his girlfriend. In late September, Musk and the SEC reached a settlement, which calls for Musk to step aside as chairman for three years and pay a $20 million fine. In addition, the settlement requires Musk to scale back his tweeting. However, just days after the two parties reached their settlement, Musk fired off a tweet calling the SEC the “Shortseller Enrichment Committee.” The SEC has yet to respond.

AAII Weekly Survey Question

With these examples of “CEOs behaving badly,” we were curious how much our readers pay attention to the man or woman in the captain’s chair of companies they invest in. So last week’s survey question asked:

To what extent does your confidence (or lack thereof) in a company’s CEO impact your decision to invest in it?

Here are the results of the survey:

In all, 1,394 readers participated.

The majority of readers (55%) say their confidence in a CEO does, at least to a moderate extent, play a role in whether they invest in a company. A third of our readers say their confidence in the CEO has, to a great extent, an impact on the investment decision-making process.

Another 18% say their confidence in a CEO impacts their decision to invest in a company to only a small extent.

Nine percent of readers say the CEO plays no role in whether they invest in a particular company.

Weekly Special Question

Having asked our readers whether their confidence or lack thereof, in a CEO impacts their decision to invest in that company, our weekly special question asks what qualities they look for in a chief executive.

Specifically, we asked:

When gauging the strength of a CEO, what qualities do you look for?

In all, we received 172 responses.

From the responses, only 5% of responses say they do not consider the chief executive when investing in a company.

Among those that do consider who’s running the company before investing in it, more than a quarter (27%) say they consider the morals and ethics of a CEO.

Another 23% consider the past performance of the chief executive.

Roughly 10% of readers consider the CEOs leadership experience before investing in the company.

Other top traits our readers are looking for from a chief executive include:

  • Good communication
  • Innovative thinker
  • Understand their industry
  • Common sense

Here is a sampling of the responses from our readers as to where they feel individual investors have an advantage over institutional investors:

  • “‘Vision’, the ability to make few mistakes, ability to communicate.”
  • “Clarity of mission.”
  • “I cannot evaluate CEOs by myself.”
  • “Competence, integrity, ethical toward customers and employees.”
  • “I do not pay too much attention to the strength of a CEO. I feel that good companies that are growing and are sound have a good CEO.”
  • “The CEO has two primary responsibilities. Avoid making poor investment decisions and pick a successor.”
  • “Knowledge of the business from an operational and financial point of view. The ability to think strategically and build a progressive and forward-thinking leadership team.”
  • “Ability to articulate a meaningful vision and ability to engage with all stakeholders–employees, customers, shareholders, communities, etc.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *