Every investor has certain parameters they use when considering whether or not to invest in a company. While each investor has their unique approach and priorities when choosing where to put their money, certain universal factors exist such as the company's business model, competitive advantage as well as market size.
More importantly, the company's leadership, specifically the CEO and their style of leadership, is an essential factor for every investor to consider before committing funds to a company.
A CEO is as vital as a captain is to the ship. The CEO puts the necessary structures and people in place to achieve the company's objectives, both long and short term. Ultimately, the culture and attitude of the organization reflects the culture cultivated by the CEO, either deliberately or unintentionally.
Before I get to the five essential leadership qualities to look for in a CEO, I will first elaborate on why a CEO is an essential factor for you to consider and evaluate.
Why is the CEO an important factor to consider when investing?
There is a direct correlation between the quality of a company's leadership and profitability.
On top of attracting the best talent, a great CEO will create an environment that fosters innovation, accountability and inclusion that often translates into profits for the organization. In his article for Forbes Magazine, Jack Zenger reports on the results from a study that was done to evaluate the relationship between leadership and productivity. That study found that a great leader had the potential to double a company’s profits compared to an average one.
2. Employee Loyalty and Retention
A great CEO can be a selling point when attracting talent, and he/she can be the reason why employees will stay and perform at their highest level. This gives the company stability and continuity, which ultimately helps its bottom line.
3. Unforeseen eventualities
Excellent leadership is usually most important during hard times. During years like 2020, with a pandemic and a global recession looming, this is when a great CEO earns the highest premium. A great CEO could be the difference between filing for bankruptcy and retaining all your employees and staying in business through a volatile year. According to glassdoor.com, Mark Aslett of Mercury Systems was the highest rated CEO in the United States during the COVID 19 epidemic. See the full list here as well as an explanation of the criteria they used to generate the list.
4. Company Culture
The CEO is responsible for curating the organizational culture. He or she must find the balance between productivity and a healthy holistic life balance for their employees. A great CEO will understand the value of diversity and inclusion in the workplace and will ensure the best workplace environment for all their employees to thrive. Statistics show that having a diverse management team with at least one decision making female increases ROI by over 30%.
5 Leadership Qualities to look for in a CEO before investing
The CEO must have a clear and thorough vision for the future and direction of their organization. Visionary leaders like Steve Jobs have been able to lead not only their companies and stakeholders but the entire world into a version of the future that they envisioned. Visionaries present with certain unique characteristics that make them stand out like they are skilled communicators and orators, they are always grappling with the future, and they are intelligent risk takers.
2. Team Building
A great CEO hires the right people for the right jobs. They also motivate and galvanize these individuals into a team with a shared goal and clear plan on how to achieve that goal. Not only are they not afraid of hiring smarter, more experienced people, they intentionally seek these employees out.
A great CEO must be able to make a timely decision and accept the weight and responsibility of that decision. That is not to say that he/she should make decisions on their own without any input from others. A great CEO is inclusive, even systematic about gathering a diverse range of inputs as a way of arriving at the right decision. However, they are also not afraid to make the unpopular decisions if the moment and their conviction calls for it. Elon Musk routinely makes unpopular decisions that he follows through on and eventually turns everyone around as the vision unfolds.
A CEO's ethics are important because just like the president of a nation, the CEO is the representation of the company's values, ethics, and morality. Many companies have been publicly shamed, lost customers and had to close because of a lack of ethics from their CEOs. The best way to know the ethics of a CEO is to see how transparent they are with information, both personal and public and whether or not they follow the rules and values of the business they manage.
As good as a CEO is at visualizing and implementing their ideas and plans, none of this means anything if that CEO is not adaptable. While we all like to make plans, seldom do plans ever go as expected. A great CEO will roll with the punches, and still achieve the company's goals, even when things don't go as their models and simulations suggested they would.