How To Tell if Your CEO is Lying.

[oec2000]

I thought this was interesting:

 

http://www.cnbc.com/id/15840232/?video=1581847013&play=1

[twacowfca]

I thought this was interesting:

 

http://www.cnbc.com/id/15840232/?video=1581847013&play=1

 

 

Are his lips moving?  ;D  Seriously, CEO honesty is positively correlated with abnormal returns.  See: Do Business With People You Trust by L.J. Rittenhouse.  :)

[Guest Bronco]

That is why I am having trouble investing outside bam, loews, brk and ffh.  Not joking either.

[Guest longinvestor]

The use of "We" versus "I"; All the hyperbole that accompanies lies remind me of a co I worked in the past. The CEO's job in that case was only to put the face on the "street" and anything done within the company was to try to put a pretty face!

 

I just watched Prem at Ryerson Univ (another thread on this board) and clearly he emphasizes telling it like it is...good and BAD...especially the bad! What a difference.

[stahleyp]

That is why I am having trouble investing outside bam, loews, brk and ffh.  Not joking either.

 

i'd like lowes a lot more if tisch didn't make so much money and didn't have stock options.

[Zorrofan]

That is why I am having trouble investing outside bam, loews, brk and ffh.  Not joking either.

 

I couldn't agree more. When you look at the likes of WEB & Prem and compare their actions to those of the vast majority of CEO's is it any wonder that Wall Street is in the mess it is today. Seriously, CEO's making huge salaries, paying themselves bonuses and generous stock options even when the company is doing poorly. No concern for the actual shareholders - the people who are supposed to own the company! Then compare that to Prem, WEB etc.....

 

cheers

Zorro

[Guest dealraker]

I'm generally a postitive natured fellow but on this subject...

 

The vast majority of CEO's are spending most of their time attempting to get as much money from their shareholders as possible and whatever means possible is fair game.  Deception skills are highly valuable to our CEO's.

 

When we overpay our corporate leaders we make them unable to run our companies.  It becomes, "wine, women, and song." 

 

Now I do have to admit if I got paid millions a year and was offered new stock options each time our share price fell.... hell, I'd be one screwed up thinker also.

 

How in hell did we get to this point?

 

 

[Guest Bronco]

A huge difference between the CEOs mentioned previously and most others is their long term thinking.  Most management teams are worried about quarter to quarter, even going so far as playing accounting games. 

 

Good management teams make investments with a 5 to 10 year time horizon, or even longer.

 

I agree about tisch's pay, but nothing we can do.  L is still cheaper to me than brk right now.

 

 

[farnamstreet]

I'd argue that the only way you're going to find companies that consistently invest with a 5-10 year time horizon, is to look for ones ones with large management ownership or a large and present shareholder. It should be pretty easy to see how they've done in the past and evaluate what's likely to happen in the future.

 

Why is this so hard to invest for the long term? Well, one reason is that the incentives of a CEO are not necessarily those of shareholders. Although, given the average holding period is, what, 6 months? Can you really blame the CEO for trying short term solutions to long term problems?

 

If I was willing to sell you a share in my company for $100, that was guaranteed by the government to be sold in 10 years for $300, most people would love that. But if I added a twist that for 3000 of those days the quotes would be below $50 with negative news stories, I bet most people and institutions would sell. It would be psychologically hard to hold onto that company, regardless of the rewards that holding would provide.

 

Another reason is that it's really hard to change the culture of a company if you're an outside CEO coming in. It's hard to go in and do something unconventional. It's hard to say, no we're not going to do that. If you're promoted from within, this is only more difficult because you're part of the problem.

 

Sears is a great example of what happens when you do something unconventional and why it's so rare.

 

A lota smart people read my blog http://www.farnamstreetblog.com/, do you?

[Uccmal]

I have met an enormous number of company owners and managers over the years and have to disagree with the sentiment of this thread.  Most people are honest, and most CEOs are also honest and hard working.  Will they put a positive spin on their companies or products - absolutely.  Prem and Buffett are included in this - I dont know the others as well.

 

Prem didn't always tell it exactly like it is.  It would have put FFH stock to zero had he done that.  Believe me when I tell you that he wasn't exactly available for comment during the short attacks in 2003, and the bad years prior.  There was one point of access to him and that was the annual meeting.  In fact, that is how I found this board.  I was searching for info on FFH as to why the stock dropped like a tank after the NYSE listing and came across this fine group with Parsad, Cardboard, Crip, and Bsilly, being the resident FFH experts at the time.

 

In his present position it is easy for him,  or Buffett for that matter, to give you the bad news as well.  I am not implying in any way that either is dishonest.  However, if you look at the press releases that accompanied the cash raises from Longleaf and Markel they state that the money was for general corporate purposes.  No where in there does the press release state the true nature of the situation which was to avoid the entire company being put into runoff.  Same with ORH going public, and NB going public.  A good CEO will do what is necessary in a time of war as well, which may involve spinning things up a bit. 

[twacowfca]

I have met an enormous number of company owners and managers over the years and have to disagree with the sentiment of this thread.  Most people are honest, and most CEOs are also honest and hard working.  Will they put a positive spin on their companies or products - absolutely.  Prem and Buffett are included in this - I dont know the others as well.

 

Prem didn't always tell it exactly like it is.  It would have put FFH stock to zero had he done that.  Believe me when I tell you that he wasn't exactly available for comment during the short attacks in 2003, and the bad years prior.  There was one point of access to him and that was the annual meeting.   In fact, that is how I found this board.  I was searching for info on FFH as to why the stock dropped like a tank after the NYSE listing and came across this fine group with Parsad, Cardboard, Crip, and Bsilly, being the resident FFH experts at the time.

 

In his present position it is easy for him,  or Buffett for that matter, to give you the bad news as well.  I am not implying in any way that either is dishonest.  However, if you look at the press releases that accompanied the cash raises from Longleaf and Markel they state that the money was for general corporate purposes.  No where in there does the press release state the true nature of the situation which was to avoid the entire company being put into runoff.  Same with ORH going public, and NB going public.  A good CEO will do what is necessary in a time of war as well, which may involve spinning things up a bit.  

 

 

Generally agree.  One thing that I appreciate about Prem and Buffett is that under stress they didn't lie which is quite different than not highlighting the worst case scenario.  The worst case was there for all to see in the adverse development of FFH's prior years' loss development triangles.

 

Once in the darkest period, Prem was asked during the AGM about why not sell one or more of the subs.  His answer was simple and truthful: "You wouldn't like the price we would get."

[Myth465]

I dont think CEOs lie per-say. I think alot of them simple have a misunderstanding of there capital structure and purpose. Many see stock as pieces of paper, and shareholders as pests. I dont come across many who truelly believe they work for me and other shareholders. Usually its the other way around. I cant blame them, most shareholders have the same misunderstanding.

[Guest dealraker]

I may too have stated things inaccurately as to how I think:  Most are simply incompetent.

[twacowfca]

I dont think CEOs lie per-say. I think alot of them simple have a misunderstanding of there capital structure and purpose. Many see stock as pieces of paper, and shareholders as pests. I dont come across many who truelly believe they work for me and other shareholders. Usually its the other way around. I cant blame them, most shareholders have the same misunderstanding.

 

 

Generally agree.  Shareholders are all to often seen merely as one of the constituencies that CEOs who don't have much skin in the game have to appease.  CEOs that have most of their wealth invested in their company are a different animal.  Most of these have shareholders' interests at heart.  What's important then is to identify any companies with CEO owners who may be big liars or overreaching and reject them as possible investments.

[Uccmal]

Once in the darkest period, Prem was asked during the AGM about why not sell one or more of the subs.  His answer was simple and truthful: "You wouldn't like the price we would get."

 

I have vague recollections of that comment.

 

I may too have stated things inaccurately as to how I think:  Most are simply incompetent.

 

That may be more to the truth.  Or they are not as able as the job could really use.  Buffett realized this early in his career.  If anyone has read 'The Big Short' by Michael Lewis, there is a comment by one of the short sellers about Ken Lewis, CEO of BAC, to the effect of 'I cant believe that a guy this dumb is running one of America's largest corporations'.

 

My guess is that political, and rhetorical skills are more useful in rising to the top of a large corporation, than general intellect or business skills. 

 

[bookie71]

My guess is that political, and rhetorical skills are more useful in rising to the top of a large corporation, than general intellect or business skills.

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Agree, it's how good a politician you are.