Tuesday, January 05, 2016

Clueless CEOs Irritate Investors

Studying the ancient Stoic philosophers has taught me to take life's complications in stride. Things that used to irritate me don't bother me so much anymore. I am still morally obligated to identify sources of irritation so other investors, who are not as mature or brilliant as I am, can avoid them. Executive pitches to the investing public are one prime source of bother.

Reviewing my notes from financial events I attended in 2015 reminds me of how clueless some CEOs can be. One junior mining company guy was totally guessing at his company's timelines for project development. Where the heck were his updated NI 43-101 reports? I couldn't find them and he didn't have them. He also cluelessly claimed a silver mining credit would reduce the cash costs of production, which is not entirely accurate. Credits may in fact offset cash costs when calculating all-in sustaining costs (AISC), but only process improvements or cheaper inputs (water, power, etc.) can truly reduce cash costs in mining. Changing accounting terms does not make a physical process cheaper or more efficient. Sheesh, that's what happens when anyone other than a geologist runs a mining company. Truly competent mining CEOs understand these nuances.

Inexperienced CEOs think throwing around names of powerful supporters will matter. Those corporate backers and industry legends may have little to no involvement in running the company. They sure do make for nice presentation filler when a company has no earnings, patents, or serial entrepreneur leadership. A prominent corporate partner is useless if they offer weak financial backing or incidental strategic value. Putting an industry legend on a board of directors works when that director is personally advising the CEO every day, not when they drop in once a quarter to review executive compensation.

Aspiring CEOs should have academic and career experience relevant to their company's industry. Geologists should run exploration companies. Computer scientists should run software companies. Medical doctors and biochemists should run drug companies. All of this should be obvious but many investors don't seem to care. Presenting CEOs who can't speak with confidence, or who mumble at crucial discussion points for particulars that drive project success, are really telling me they don't know how to be CEOs.

Presenting a corporate story that depends on someone else's theoretical action just falls flat with me. I have listened to CEOs who claim their business will succeed if only some other government builds phantom infrastructure that does not exist. I hear that all the time in the resource sector. I'll believe the project is viable when the road, power line, or port facility is finished.

I could warn investors to stay away from clueless CEOs until the cows come home. Only a few people will listen. The rest of the investing public craves the seduction of an entertaining story, even if its parts are stitched together from fiction. I'm on the hunt for CEOs who openly lie about their corporate finances so I can turn them in for a regulator's bounty. I have to ignore the others who just want to waste my time.