stephen t. mcclellan

A critical aspect of Wall Street and investor appraisal of a company entails evaluating management: gauging executive quality, character and values. Executive demeanor speaks volumes to investors, and what CEOs deem appropriate behavior often is actually off-putting to investors.

Giving preferential access to Street analysts is one of the most egregious top management mistakes in investment community dealings. Management should steer clear of blacklisting analysts who carry negative investment ratings or affording privileged access to bullish analysts-that is, exclusive meetings with the CEO, invitations to user meetings or headquarters visits for the analyst and his top clients. Impartial, evenhanded executive treatment of all analysts indicates outstanding management quality and character.

Frank Lautenberg, president of Automatic Data Processing and New Jersey's U.S. Senator , once wrote me a letter after I downgraded his stock. He communicated understanding and a continuing open-door policy. His letter won both my respect and anticipation for a time when I could appropriately upgrade his stock again.

Another credibility-damaging practice is dodging culpability by blaming the economy, foreign currency, government, irrational competitor pricing, consumer spending, interest rates, etc. Disappointing results are sometimes attributed to non-operational factors such as inferior forecasting, accounting or reporting systems. Even analysts and the press are occasionally impugned when companies falters.

When Krispy Kreme Doughnuts lowered its earnings guidance and indicated an SEC investigation was in progress, it attributed slower sales to the low-carbohydrate diet craze. Yet, Dunkin' Donuts incurred no such weakness. The culprit now in vogue for any and all shortfalls is the subprime mortgage loan-credit crunch. Even The Hershey Company trotted it out as an excuse. Quality leaders recognize the buck stops with them, and they emphasize their actions to address the situation rather than deflect responsibility.

Conversely, CEOs often take too much credit when stock prices climb. This is equally unseemly. Stock price fixation indicates to investors that executives are managing the stock rather than the company. It implies that management is short-term oriented, emphasizes quick fixes and may be taking artificial measures such as inflating earnings to boost the stock price.

A high-profile software company used to hold regular investor meetings, each beginning with a slide displaying its up-sloping stock price performance. The CEO took full credit. No humility there. We analysts gagged. After a few years the company's business hit the wall, earnings cracked badly and the stock price plummeted. At the next analyst meeting, there was no reference whatsoever to the stock price.

There are several other mistakes CEOs commonly make in dealing with the Street. The list includes making aspersions about competing companies or analysts with negative views; hubris, ego and over-confidence; hype and splashy photos of the CEO in ads; lavish digs, perks and excessive executive comp packages; ostentatious executive McMansions, parties and jet-setting extravagances; flamboyant attire and other self-indulgences.

I could go on, but you get the idea. Instead, take chief executives such as Warren Buffet, Bill Gates, John Chambers or Meg Whitman as role models and watch your esteem rise in the eyes of investors.