Our Hypothesis: Founder CEOs Will Outperform Over the Long-Term
We believe that founder CEOs will generally outperform non-founder peer group CEOs as well as broader benchmarks over the long-term. We believe this to be true both in terms of stock market returns as well as operating performance as measured by traditional financial measures such as Cash ROIC, ROE, ROA and Economic Value Added.
We recently created the CEORater Technology Founder CEO Index in part to help test our hypothesis. Over time we plan to operationalize the index to where investors may use it as an investment vehicle (stay tuned).
Founder CEOs tend to take a long-term view of the companies they created (their children). Where hired CEOs focus on the current quarter and year, many founder CEOs want their respective companies to thrive in perpetuity.
Legacy Matters to Founder CEOs
It’s about legacy for founder CEOs:
- It’s why Jeff Bezos (AMZN) thinks about 50 year increments as opposed to quarterly increments;
- It’s why Reed Hastings (NFLX) pushed OTT, original content and international investment when many investors wanted a U.S.-focused DVD distribution company;
- It’s why Bill Stone (SSNC) has built one of largest FinTech companies during a period when much of the Capital Markets industry has become commoditized.
We reviewed Total Stock Returns over the January 3rd 2017 – February 8th 2018 period:
- The market cap weighted total stock return for the CEORater Technology Founder CEO Index over the measured period was 55.5%.
- The market cap weighted total stock return for the S&P 500 Information Technology Index (ticker: S5INFT) was 32.0% over the same period.
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