The Great CEO-checklist

What makes a great CEO? What should you avoid? Find out!

When you invest in a company, you’re not just investing in a product or a balance sheet. Your investment success is also largely determined on the quality of the management team. They will make or break your investment.

Two companies can operate in the same industry, with similar margins and opportunities. Yet one becomes a compounding machine, while the other fades into mediocrity or bankruptcy. Think Microsoft vs IBM or Netflix vs Blockbuster. The difference often starts at the top.

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What makes a great CEO?

1. Integrity and trustworthiness
   Leadership starts with credibility. A great CEO tells shareholders the truth (even when it hurts).

2. Long-term > Short-term
   The best CEOs make long-term investments and don’t chase short-term trends. Often, the best CEOs act contrarian (investing/hiring when others start saving) to get a better price for what they get.

3. Empowerment
   Like a great captain in a soccer team, they make everyone around them better, from management teams to frontline employees. More often than not, being a founder gives the power to tell the story and inspire employees like no one else can.

4. Leading by example
   The CEO’s work ethic and character set the tone for the entire company. Culture starts at the top. Spending heavily on business class tickets? Employees demand the same. Talking others down and showing no respect? Don’t be surprised when employees start doing the same, and the company culture becomes toxic.

5. Earned leadership
   The best leaders grow within the organization. They don’t get hired externally. They understand the DNA better and have built a reputation internally. Besides, promoting from within gives others something to strive for.

The power of great CEOs

Let’s look at some businesses where great leadership changed everything.

Pieter van der Does → Adyen

Van der Does co-founded Adyen in 2006, and has been with it ever since. From building up relationships with their first customers (Groupon and eBay), to leading the company where it is today.

These days, Van der Does is focused on nurturing what might be one of the most unique company cultures in the world, while still occasionally getting involved in commercial deals.

Satya Nadella → Microsoft

When Nadella took over in 2014, MSFT 0.00%↑ was a slow-growing software organization living off Windows and Office. Microsoft employees lacked inspiration and a clear sense of direction, as the company appeared to have missed both the mobile revolution and the rise of the cloud.

Today, it’s arguably the most powerful company with a market cap over $3 trillion, and one of the world’s leading players in cloud and AI.

Nadella changed Microsoft’s culture to curiosity and empathy. He invested heavily in Azure and refocused the company on long-term innovation.

The result: since his appointment, Microsoft’s stock has risen more than 1,000%.

Andy Jassy → Amazon

Jassy earned the CEO position through fantastic performance in AMZN 0.00%↑ cloud division, AWS. He built from scratch what’s now known as one of the most profitable businesses in history.

As CEO, he’s balancing aggressive expansion with discipline, cutting costs while doubling down on logistics and cloud. Another positive: the company hasn’t lost its DNA, because its leader grew up inside it.

Nice pick, Bezos!

Jensen Huang → NVIDIA

For 30 years, Huang has led NVDA 0.00%↑ from a gaming chipmaker to the beating heart of the AI revolution. He’s a rare blend of visionary and tireless operator. In an interview, he once said:

“I work from the moment I wake up to the moment when I go to bed, and I work seven days a week. When I’m not working, I’m thinking about working. And when I’m working, I’m working.”

We don’t need to talk about NVIDIA’s performance. It’s beyond impressive. And there’s no doubt Huang played a major role in that.

The list is endless, so feel free to add other names to it. Other fantastic CEOs include Ron Vachriss (Costco), Tim Cook (Apple), but also lesser known names such as Aengus Kelly (Aircap), Louis von Ahn (Duolingo) and Andrew Dudum (Hims).

Let us know which CEO’s you would add and why! Leave a comment ⬇️

The cost of bad leadership

To see why great CEOs matter, you only need to look at the wreckage of those who failed.

Bernard Ebbers → Worldcom

Ebbers built one of the largest telecom empires in America, until it turned out to be built on fraud. A major lack of trustworthiness. He inflated earnings to meet Wall Street expectations, wiped out $180 billion in shareholder value, and went to prison. Yikes.

Paul Otellini → Intel

Otellini made the mistake where it all went wrong for INTC 0.00%↑. The semiconductor company dominated the industry with a (what it looked like) unbeatable monopoly with their x86 chips.

When Steve Jobs asked Otellini if they wanted to produce their chips with certain specifications, Otellini said no. Here’s what Otellini said about it in an interview.

“At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more, and that price was below our forecasted cost. I couldn’t see it. In hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought.”

Otellini lacked the vision that others had, and betted on the wrong horse by failing to innovate.

A checklist for investors

As an investor, you can analyze financial statements all day, but culture and character don’t end up on a balance sheet.

We’ve created a checklist to help you assess the quality of a management team. There’s no one-size-fits-all, but leaders like Jensen Huang, Satya Nadella, and Pieter van der Does tick nearly every box.

So, the next time you research a company, please be aware of the importance of the management team, and especially the CEO. And if you want to assess the quality of the CEO, use our checklist.

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Have a wonderful day and happy investing.

The Dutch Investors