As if the troubles at Bear Stearns (NYSE:BSC) this summer weren't enough, last week's article in The Wall Street Journal about CEO James Cayne's less-than-motivating behavior just adds insult to injury.
Some of the accusations leveled against Cayne are downright embarrassing. Would you attend a weeklong bridge tournament without a cell phone while your firm was in dire straits? How about four-day, helicopter-chauffeured weekends on the golf course? I've listened to Kenny G albums that were more stressful than that.
Investment guru Peter Lynch once remarked, "Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it." He brings up a good point. Even the best companies in the world aren't guaranteed to have equally impressive managers running them.
But for those of us who do want to check up on a company's management before making an investment, what should we look for? A good academic background? Success in previous jobs? Experience in the industry?
No matter how talented and business-minded CEOs look on the outside, sometimes the details of how they conduct themselves can be quite revealing. Here are a few things to look for.
One for me ... none for you ...
In an age where nine-figure golden handshakes are awarded for mediocre-at-best performance, we sometimes overlook whether a CEO is producing a proportional amount of bang for their bucks.
For example, take former Home Depot (NYSE:HD) CEO Robert Nardelli. During his five-year tenure, Nardelli took home more than $245 million in compensation -- equal to the annual GDP for all of Micronesia -- even though the stock ended lower on his last day on the job than when he started.
Now, I don't have a sophisticated formula for trying to figure out fair compensation for a CEO who produces a cumulative negative shareholder return. But I'm willing to bet it's quite a bit less than Nardelli's total paycheck. Talk about taking shareholders for a ride.
Compare that with a CEO who only profits when you do. The best example would be Warren Buffett, who takes only a $100,000 annual salary for running Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), banking the vast bulk of his financial prosperity on Berkshire's share appreciation. Other stellar examples include David Hanna of CompuCredit (NASDAQ:CCRT), who demands only a $50,000 annual salary, and counts on his 27% stake of the company to bring him financial success. Now that's eating your own cooking.
This isn't fantasyland
Believe it or not, a CEO can get the job done without being treated like King Tut. But how much fun would that be?
As if massive pay packages weren't enough, some CEO perks are just downright excessive. Last year, eBay's (NASDAQ:EBAY) CFO was offered as much as $700,000 if he couldn't get the price he wanted for the Texas house he gave up to move to the company's California headquarters. I'm sure the millions of homeowners facing foreclosure just love to hear that.
Compare that, once again, with Warren Buffett. In 2006, he reimbursed Berkshire $50,000, or half his salary, to cover his personal postage and phone calls. You'll find similar thriftiness in Wal-Mart (NYSE:WMT) CEO Lee Scott, who often chooses the cheapest hotels he can he can find, while his CEO brethren hobnob at glamorous resorts. He even shares hotel rooms with other employees while on business trips.
Often, you can tell just from someone's attitude what kind of manager they are. For instance, DR Horton (NYSE:DHI) CEO Donald Tomnitz recently remarked, "I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year." Now that, my fellow Fools, is what I call checking your ego at the door. It's exactly what you want from someone running a company you invest in.
The underlying rule here: Look for CEOs who think about shareholders more than themselves. Don't forget that as a shareholder, you own a part of the company, and anyone working for you should have a tremendous amount of respect for the job they're in. After all, their job is a privilege, not an opportunity to pillage.
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