Greed, The CEO and the Investor: Shareholders Best Interests

Submitted by Craig Strzelecki on 17 March, 2006 - 21:10

Who looks after whose interests? Greed and fear runs the markets, do they operate on the CEO too? Mark Cuban, a self made billionaire - rarely heard about in Australia, but nonetheless, being a billionaire has earned a little of my respect revealed some of his views recently about the disconnect between the CEO and shareholders. Can shareholders safely assume that the company CEO is working towards the shareholders' interests? In the view of the billionaire who made his cash on the back of dot com success and now owns the Mavericks NBA basketball team, there is a conflict in today's CEOs intentions that may harm the shareholder's bottom line.

Beside Mark Cuban being cynical over this topic, the true motivation for his post I think is to protect the mum and dad investors who just seem to go for a ride in the markets. Keyword: Investors. As for us traders, as we mostly follow trends to make our profits, we wouldn't be too concerned about this phenomena. But for other traders who also have a balance in their portfolio - holding shares in the view of long term investment - you are open to this risk. There are two types of CEO according to Cuban. One is the founder type of CEO and the other is the CEO that was employed to do the job of managing the company. Each one has different views and goals as to the long term vision of the company.

Cuban picks out the CEO for hire type by noting that their goals are at a disconnect to the ordinary shareholder. Hired CEOs have a limited amount of time to achieve their goals. Their goal is to get paid. To get paid big. And to get that bonus, the CEO needs to make a big chunk of money in the shortest amount of time. Now what does this do to the long term goals of a company? Isn't the job of the CEO supposed to be to look after the long term goals? This fact in large is in conflict with the long term goals of the stock investor. Be warned. Be cautious. CEOs are greedy too.