I know it sounds ludicrous, but investors often overlook the people in charge of protecting their investments. The idea of gauging a company's leadership plays second fiddle to other categories of analysis. However, at Fool.com, we believe careful study of effective leadership is one of the most important areas in evaluating long-term winning investments.

We like CEOs who actually work for shareholders like us. After all, we're the true owners of the business. When you're deciding whether to invest in a company, failing to vet its CEO is a big mistake. In fact, if you've overlooked the study of a company's leadership, then that's the one important area you should know about before finalizing your investment in the company.

After reviewing thousands of companies over dozens of years, we've found several crucial characteristics of quality management. Today, we'll size up the recent performance of Sysco's (NYSE: SYY) leadership.

How much skin do they have in the game?
Are Sysco CEO William DeLaney's interests aligned with shareholders? Here's how the Sysco CEO's ownership compares with that of other companies in the food distributor industry.

CEO, Company

Shares Owned

% of Shares Outstanding

Insider Ownership Market Value (in millions)

William DeLaney, Sysco




Steven Spinner, United Natural Foods




Mike Anderson, The Andersons




Source: Capital IQ, a division of Standard & Poor's. Shares are common-stock equivalents only and do not include options, awards, and other forms of compensation.

DeLaney actually owns $2 million worth of Sysco, or 0.01% of shares outstanding. We Fools prefer CEOs who have higher ownership stakes in their businesses, since that better aligns their interests with shareholders'. However, while we think high insider ownership is a good sign, low insider ownership isn't necessarily a bad one. CEOs may be relatively new, or may have a low percent of shares outstanding, but a high total value of ownership.

How well are they using your money?
Return on equity can help investors determine how adeptly management gets the job done. This metric combines how well management is expanding profitability, managing assets, and using financial leverage, all in one ratio. While return on equity isn't foolproof -- managers can manipulate it with excessive leverage, for example -- it does an excellent job of suggesting how effective managers are, and how well they can generate high returns on investors' capital.

Here's a look at Sysco's recent return on equity:

Despite difficult economic conditions, Sysco managed to grow return on equity beyond its five-year average. Consistently increasing return on equity suggests that management is either adept at cutting costs and managing assets, or is moving the company into new high-return areas. In Sysco's case, managing to maintain such a high ROE is a sign of a well-run business.

How productive are the workers?
Revenue per employee provides another way to gauge a CEO's effectiveness. If this metric is declining, the company might have a bloated organizational structure, or too many extra employees toiling away at new initiatives that just aren't working out. Either possibility would hint that management isn't effectively running the organization.

Source: Capital IQ, a division of Standard & Poor's.

As you can see, Sysco's revenue per employee has moved above its five-year average. Rising revenue per employee can suggest that management's getting better at controlling costs, or encouraging more productivity from its workers. To better see whether Sysco's management is excelling in this area, let's compare the company with its peers once again:





Last Year's Revenue Per Employee vs. 5-Year Average






United Natural Foods (Nasdaq: UNFI)





The Andersons (Nasdaq: ANDE)





Source: Capital IQ, a division of Standard & Poor's. Dollar figures in thousands.

Sysco has been growing its revenue per employee. An 11% jump in revenue per employee is a pretty impressive jump over its five-year average.

In the end, management aims to return capital to shareholders, especially if the company can't adequately find new high-growth areas to invest in. So we're pleased to see that:

  • Dividends have increased by 11.3% annually over the past five years. The company's dividend yield stands at 3.5%.
  • Its outstanding share count has dropped over the past five years. While CEOs are often tempted to keep key talent through lavish stock-option awards, this tactic can dilute current shareholders if it's used excessively. If the company's stock isn't overvalued, buying back its own shares is a very tax-effective way to return capital to shareholders.

These are just a few of the factors we look for in a company's management. If you can find leaders who continually give shareholders high returns on their capital, and align their interests with yours, you've got a better chance to enjoy market-beating returns for the long haul.

Jeremy Phillips, VP of Fool.com, doesn't own shares of any companies listed above. Sysco is a Motley Fool Inside Value pick and a Motley Fool Income Investor selection. The Fool owns shares of Sysco. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.