CEOs – The Most Undervalued Investment Variable

CEOs – The Most Undervalued Investment Variable

We are sometimes critical of CEO compensation packages, yet we are first to admit that CEOs have an outsized influence on the future prospects of companies large and small. This is particularly true of fast-moving industries such as technology where having the correct CEO in place may mean catching the latest technology wave – cloud, artificial intelligence, edge and on-device computing – versus pursuing the wave in a half-hearted manner or missing the opportunity entirely.

For example, earlier this week Intel agreed to acquire Barefoot Networks in order to position itself for new chiplet designs optimized for the cloud. Yes, there are chip designs optimized for gaming and machine learning in the cloud. If your CEO isn’t attuned to gaming in terms of the size of the gaming industry and its growth potential, that CEO may not pursue revenue opportunities around gaming with the proper sense of urgency.

Consider Microsoft and the cloud. It wasn’t until Satya Nadella moved into the C-Suite that Microsoft focused its over-arching strategy around the cloud and all it encompasses including artificial intelligence, machine learning, machine teaching, deep learning/ conversational AI, edge computing, mixed reality and more. In a few short years Microsoft Azure has established itself as the clear number two “cloud services” platform behind industry pioneer AWS (a business unit of Amazon).

Institutional investors need to recognize when the correct person is in the CEO chair versus an unqualified CEO. There is enormous market value at risk and significant opportunity cost. Staying with the Technology industry for a moment, a quality CEO does more than meet or beat the revenue and EPS outlook provided to institutional investors. A quality CEO will recognize that the cloud is a superior way to deliver software applications as it provides the vendor the ability to monitor customer usage in real-time. This intelligence can then be leveraged to improve various features and the user experience, leading to greater customer satisfaction and ultimately higher renewal rates and net new subscribers. Further, a sharp CEO will him/herself know or have a Product Head that understands that a machine learning back-end will accelerate usage insights captured by the vendor.

This brings us full circle to one of our core principles for evaluating CEOs – Intellectual Curiosity. A CEO that no longer wants to be told of bad news (i.e. a “learning opportunity”), someone who jumped off of the learning curve years ago is a tired CEO that should no longer lead companies.

cover image: the late Andy Grove, former Intel CEO. Intellectual curiosity personified.