Executive traits sway investment decisions: a former top-rated analyst shares insights on thinking from the buy-side and qualities the pros look for in companies--and their executives.

• Author: McClellan, Stephen T.
• Position: FROM WHERE I SIT - Viewpoint essay

Investors evaluate companies by gauging management effectiveness, quality, character and values. Yet, surprisingly, financial executives, who have an inordinate influence on their stock price--or for private companies, on the company's investment valuation--often transmit the wrong signals and act improperly with their investors. They fall prey to cheerleading and puffery. They over-promote their stock and manage the stock instead of the company.

The executive traits that are good indicators of management quality are relatively simple. These reassuring characteristics suggest to investors that a company is likely to have promising merit. The following executive attributes are key to any company's evaluation by outside entities, not just investors or Wall Street, but also to the media, customers and employees:

Candor, Access. Executives gain credibility by being forthright and freely discussing negative cross-currents and challenges. Access is critical. Thus, management must be open, available and responsive to Wall Street and investors, as opposed to being evasive or secretive.

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Humble, Genuine. These qualities are contrasted with leaders displaying arrogance, attitude, ego, hype or public-relations "baloney." Firms in the Midwest, for example, seem to be more genuine. Warren Buffett comes to mind; he schmoozes with the little guy, eats hamburgers with Microsoft founder Bill Gates in the local diner and speaks with brutal frankness. Executives need to willingly admit mistakes and alter course. No one's perfect or invincible.

Trust, Quality, Class. Management must be honorable, their comments reliable and their actions straightforward. C-level executives should act with class, not be litigious, display vindictiveness nor do anything shady or sleazy. Investors need to be able to trust executives to the core.

Hands on, in Touch. Executives should be aware of what is occurring within their company at several levels and be in contact with the "little people"--and not buffered by multiple management levels. Ross Perot (the founder of Perot Systems Corp.) was a master at this technique of chatting with his lowest-level associates in the elevator and in the cafeteria. John Chambers at Cisco Systems Inc. engages all strata of employees.

Outgoing, Aggressive, Confident. Interestingly, these elements can co-exist with humility. Executives should not be shy, inward or parochial. There needs to be a certain toughness, assertiveness...