Even though talking to CEOs is helpful, I don’t think it’s required in order to get an idea of how shareholder friendly they are. Last year I added a section to my investment checklist called “Management intangibles” where I go through a number of things that give hints as to what type of CEO I’m looking at. I like asking myself these questions because the answers to all of them are public information and/or fact-based. When talking to a highly charismatic CEO who is a natural salesman, it’s easy for the halo effect to take over and to think higher of them than I should. The halo effect is when we take one attribute of someone (this CEO is knowledgeable and talks with confidence) and assign them other unrelated positive attributes because of it (this CEO is shareholder friendly and a good capital allocator). It’s a human bias that we’re all guilty of (most commonly with attractive women) so it’s a good idea to try and counteract it.
I think combining these list items with my impressions from talking to the CEO leads me to a less biased opinion that’s more rooted in facts. So below is a list of all the things I go through in my intangibles checklist. None of these are deal killers and virtually all CEOs have the “wrong” answer on a few of them, but looking at them as a whole can give a decent picture as to what the CEO is like.