According to a recent Gallup poll (1), the American public overwhelmingly agrees that the three most important characteristics of a would-be President are having a vision for the country's future, being a strong and decisive leader, and being able to keep the economy strong. There is also a general consensus that military service, never having used illegal drugs, and regular religious service attendance are far less important. There are some differences between the two parties (Republicans tend to rate moral leadership and marital fidelity higher than Democrats, while Democrats tend put more emphasis on caring about the poor); but the similarities outweigh the differences.

The list of features that shareholders tend to look for in a CEO is virtually identical: having a vision for the company's future, being a strong and decisive leader, and being able to keep the company financially strong. The latter quality is obvious, but the former two probably warrant further discussion.

Vision: Do you want a visionary or an operational genius to lead your country? What about to lead the companies you invest in? All politicians and most CEOs claim to have a vision for the future, but this shouldn't always be the top priority. When Lou Gerstner took over a troubled IBM on April Fool's Day in 1993, he was asked what his vision was. His response was, "the last thing IBM needs now is a vision". And he was right. In that situation, an operational genius was needed. Sometimes a visionary is the right person for the job, because building a great company (or a great country) requires the ability to look far into the future. But sometimes it's more important that the leader be able to take whatever course of action the majority of his/her constituents want to take. The ideal candidate for either job is probably someone adept at both long-term strategy and short-term tactics, but depending on the situation one might be more important than the other.

Decisiveness: Most voters and shareholders want a strong and decisive leader. But does that necessarily imply moral leadership as well? Republicans tend to rate moral leadership as more important than Democrats do. For both politicians and CEOs, the most successful leader will be someone who can make difficult decisions and be tough, even ruthless, when necessary. The essential characteristic in both instances is trust, but it's more complex than that -- the important thing is not that the leader can be trusted to do the morally right thing, but that he/she can be trusted to do whatever's best for his/her constituency. (By the way, this is harder for politicians than CEOs, because the interests of shareholders are more closely aligned than those of voters: whatever a company does usually has the same effect on all shareholders in proportion to their ownership, but many political decisions are zero sum and hurt one group as much as they help another.)

To summarize, both voters and shareholders are looking for an individual who will work tirelessly to serve the best interests of those he/she represents. The details are different, such as the ideal candidate's specific areas of expertise, but the fundamental characteristics are the same: vision (ideally in combination with operational talent), decisiveness, and fiscal competence. Have you ever bought a stock solely or primarily because you believed that the CEO possessed these qualities? Or sold one because you believed he/she didn't?

The Process
How are the selection processes for CEO and U.S. President similar and different?

In the above section, we decided that the fundamental characteristics of the ideal CEO and the ideal President are similar. Does that imply that the selection processes should be similar? Yes, and indeed they are:

• U.S. Presidents are generally career politicians, who work their way up the ladder by starting in local politics and handling increasingly large constituencies. Presumably this series of screens filters out unqualified contenders by demanding a consistent record of success. The selection process for CEO is similar. In most cases, the individual works his/her way up the corporate ladder, either at one or more companies, handling increasingly large projects which also act as a series of screens to reveal who is most qualified for the top spot. Both selection processes are highly competitive. Indeed, it is not a coincidence that the term "office politics" is often used to describe some aspects of the struggle for power in a corporation.
• Many companies tend to promote from within, both for CEOs and other positions, for several reasons: they know the qualifications of these people better than those of outsiders, they want to incentivize current employees to strive for success, and they feel that insiders are more likely to believe in the company's mission and to care about its success. (One exception is when a company is having serious problems and looks for an outside CEO to bring a fresh perspective.) In politics the promotions are often also from within, because communities generally believe that outsiders are less likely to understand and be able to serve their needs (witness Hillary Clinton's efforts to persuade New Yorkers that she is running in order to serve their interests rather than her own).
• At first glance, it may appear that the role of money is different in the two processes. In a corporation, each shareholder's vote is proportional to his/her ownership. In an election, each voter seemingly gets one vote. But the one-vote-per-voter rule can be circumvented by any entity with enough money (as Vote-Auction.com (2) is trying to demonstrate, legally or illegally). Some have argued that corporations themselves often decide elections (MAXfunds.com (3) has created indices of the top publicly traded companies that have contributed soft money to the two leading presidential candidates. FEC.gov (4) also has party fundraising information). The focus on campaign finance reform as an issue in the primaries this year also demonstrates that money is a serious issue in political campaigns. Similarly, while you can't quite buy an election, the presence of Ross Perot, Donald Trump, and Steve Forbes as relatively serious contenders in past elections do demonstrate that money can make a difference. (OpenSecrets.org (5) has interesting information on the influence of money in the political system.)
• Another way in which the selection processes for CEOs and U.S. Presidents are similar is that both are representative democracies rather than true democracies. Both as a voter and as a shareholder, you elect officials who are responsible for acting on your behalf. We'll explore this further in a subsequent section.

• One way in which they differ is the relative importance of style and substance. While voters probably want to believe they prefer substance over style, many studies have shown that style is at least as important as substance in their decision-making process. Ever since the first Kennedy/Nixon debates were televised, the media has played a major role in presidential elections: if the camera doesn't like a candidate, he/she will face an uphill battle. Although public companies certainly understand the importance of the media in shaping investor perception, the media is less influential in the CEO decision-making process. Since the decision is being made by the board of directors (sometimes with the help of the outgoing CEO), the media's role is limited. The board can evaluate each candidate's performance directly, and would not be inclined to be swayed by the media. I don't mean to imply that the public's opinion of a company and its CEO isn't important to a company's success. It certainly is; their use of PR, spin control, analyst meetings, and advertising is at least as savvy as similar tactics by politicians. But these actions are usually designed to raise the public's opinion of the company rather than the CEO, and while they might occasionally affect whether a poorly performing CEO manages to keep the position, they aren't likely to affect who that CEO's successor might be.
• Another way in which the processes differ is in the level of accountability. There's a higher level of accountability for CEOs than for politicians, primarily because it's easier to judge a CEO's performance by looking at the company's financials than it is to judge a politician's performance by his/her record. But this doesn't necessarily translate into better performance for CEOs, because of conflicts of interest in the system. CEOs often get huge bonuses for questionable performance, and golden parachutes may reduce their incentive to work hard to serve the shareholders' interests. Also, CEOs are usually not fired unless they're doing a terrible job (more on this later). Could the link between pay and performance be more logical and more motivational? What if shareholders got to choose the CEO's bonus? Would Charles Wang of Computer Associates still have received $650 million in 1999? Similarly, what if voters could award their elected officials a performance-based bonus? There are obviously some issues with each of these ideas, but they're interesting thought experiments.
• Another difference between CEOs and politicians is the term of office. Elected officials stay for a fixed period (unless they really mess up) and repeat for additional terms only if voters still want them in office. CEOs have no fixed term limits, and tend to stay as long as they're not doing a terrible job. Some consequences follow from this difference: for example, CEOs are less inclined to push problems into the future, while politicians often prefer to let their successors handle the real problems (such as Social Security). (As an aside, a different way to look at the duration of the decision's impact is on the individual (voter or shareholder) rather than the entity (municipality or company). The choice of CEO is usually a very long-term decision, but investors aren't locked in; it's much easier for a shareholder to sell one stock and buy another than it is for a voter to move from one municipality to another.)

A Leader's Import
How important is the U.S. President's role in the overall system? What about the CEO?

The U.S. President and the CEO are each the single most important person in their respective systems. But how much power does each of them really have?

Both systems have distributed power structures. In the U.S. government, power is divided between the executive, legislative, and judicial branches, and between the federal government and state and local governments, with countless checks and balances designed to prevent any single part of the system from becoming too powerful. In a corporation, the power is divided between the shareholders, the board of directors, and the CEO and other officers, as follows:

1. The shareholders can elect directors (although the initial board of directors is usually selected by the incorporator or promoter), amend bylaws, approve the sale of all or substantially all of the corporate assets, approve mergers and reorganizations, amend the articles of incorporation, remove directors, and dissolve the corporation.
2. The directors manage the corporation and make major policy decisions: authorize the issuance of stock, decide on whether to mortgage, sell or lease real estate, and elect the corporate officers.
3. The CEO and other officers are normally directly responsible for the day-to-day operations of the business.

When you're planning to move, how closely do you examine the mayor and governor of the cities and states you're thinking of moving to? Most people don't look very closely, which supports the position that while these politicians may be powerful, they don't have the ability to radically change, for better or worse, the city or state they govern. We can't use the same logic to determine the importance of the President, because very few people would leave the country just because they didn't think the current President was qualified (actor Alec Baldwin is in this group, having said he will leave the U.S. if George Bush Jr. is elected). But I think most people would agree that while a truly great President can have a permanent positive effect on the country (Lincoln, FDR, etc.), even a bad President is usually surrounded by enough smart people to avoid disastrous errors. How different would the country be today if Bob Dole had beaten Bill Clinton four years ago? Similary, would the path we take with Al Gore be dramatically different than the path we take with George Bush Jr?

When you're evaluating a stock for purchase or sale, where does the CEO rank on the list of priorities? This is probably more important to you than the political incumbents in a city or state you're considering moving to. And justifiably so. CEOs have more power over their domain than politicians do. A great CEO can build a company into a lasting success, while a bad CEO can run a company into the ground. Some might even argue that the CEO is the most important factor to consider when evaluating a stock. After all, would Schwab be Schwab without Charles, or would Siebel be Siebel without Tom? Are you currently holding any stocks that you would sell if the CEO quit (and you knew that it was for genuinely personal reasons, and not an indication that the company was having problems)?

Warren Buffett has said that "you should invest in a business that even a fool can run, because someday a fool will." I disagree. Using this selection criteria may eliminate one potential source of risk, but it also screens out a lot of great companies (including, ironically, Buffett's Berkshire Hathaway, which I expect will have tremendous difficulty finding a successor of Buffett's caliber once he retires). back to top
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Companies and Sites Mentioned: Gallup Poll: Presidential Qualities Article about VoteAuction.com MAXfunds.com The Federal Election Commission (FEC) OpenSecrets.org

Companies and Sites Mentioned: ProxyVote.com eRaider / Allied Owners Action Fund Lens, Inc. Corporate Library CalPERS MetaMarkets.com Open Fund