This Is When to Worry About Your CEO (BRK-B, MT)


There are a lot of things we could say about former MF Global (OTC: MFGLQ) CEO Jon Corzine. If we were to ask thousands of former MF Global customers -- who, as a group, are missing $1.2 billion after the broker's epic collapse -- most of those things probably wouldn't be fit to print on a family-friendly website like The Motley Fool.

However, there is one thing we can say for sure and don't have to censor: Jon Corzine didn't need MF Global.

As a former chairman of Goldman Sachs, a former U.S. senator, and the former New Jersey governor, Corzine had an impressive resume that could have opened any number of doors for him -- most of them plenty lucrative and not terribly challenging on a day-to-day basis. Corzine was also already a very wealthy fellow. He had enough to spend roughly $100 million financing his political ambitions and according to, he was the third-richest senator in 2005, with a net worth that may have been as much as $250 million.

To reiterate, if Jon Corzine's path had never crossed MF Global's -- heck, if Corzine was never a CEO, chairman, or other key executive anywhere ever again -- the 64-year-old would have likely lived out the rest of his days very comfortably.

There are a lot of directions we could run with this, but what I want to focus on is what stock market investors can take away from it.

Just one metric
Back in 2009, Fool co-founder Tom Gardner wrote an article titled "How I Find Great Stocks." Right at the outset of the article, Tom wrote something that really stuck with me. He said that if he had to choose just one metric to base his investment decisions on it wouldn't be growth, price-to-earnings ratio, return on equity, or balance sheet cash. Here's what he wrote:

The metric is straightforward, easy to find (just look at a company's 14A filing), and it doesn't require any math or investing experience to interpret. You'd be amazed by how closely correlated it is with stock market success, and yet it is still overlooked by the majority of investors. You MAY have guessed it ... my metric of choice is insider ownership.

How did Corzine stack up on this metric? At the peak of his ownership, Corzine had $3 million invested in MF Global, which equated to roughly 0.24% of the company's outstanding shares. To put that in perspective, for somebody with a more modest $250,000 net worth, that ownership stake would equate to around a $3,000 investment. That's certainly enough to be bothersome if lost, but hardly the type of investment that would cause our fictional investor to be especially cautious and conservative.

But it goes even further than just the money. Beside the fact that his buddy Chris Flowers' investment fund had an investment in MF Global, Corzine didn't have any strong connections to the company. He didn't found the company, nor did his family. He didn't come up through the MF Global ranks. The futures business wasn't even what Corzine focused on when he was blazing a trail through Goldman Sachs. In other words, Corzine was simply a hired gun who had the opportunity to make some money and burnish his reputation without really putting much on the line.

Into the scrum
So how can investors use this in choosing stocks? Building on what Tom said in his 2009 article, it's a good idea for investors to evaluate who's running the company in question and what they've got on the line.

On the one hand, with a CEO who founded the company and has most of his net worth tied up in his ownership stake, there's a much higher likelihood that the decisions he or she makes will be with an eye toward outcomes that all shareholders can cheer. On the other hand, a hired-gun CEO like Corzine who doesn't have any ties to the company, or much to lose, should bring extra scrutiny from investors.

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