Managers should also be worthy of the trust you give them when you invest in their company. They should be honest and fair with their shareholders who, as the owners of the company, are their bosses. If you owned a small business, you would expect this of the people you hired why shouldn't you expect the same in a large business?
Since the priorities of a company are usually set by the chief executive officer (CEO), it makes sense to look at the priorities of the CEO. One approach is to examine how the CEO is paid, which is disclosed each year in the company's proxy statement. You would like to see the CEO have the opportunity to become rich by making the shareholders rich. This can be done through a generous bonus plan based on achieving well-defined results.
Stock ownership by the CEO is important, as well, but that ownership should not be as a consequence of large and recurring gifts of company options. Such options have no downside to the CEO and diminish the upside for you and the other stockholders.
The annual report provides another glimpse into the thinking of a company's CEO. Read the letter to shareholders at the beginning of the report. Get a sense of whether the CEO is concerned about telling you what needs to be done and how to do it, or is content to toss out "warm and fuzzies" about hard work and good people.
You should also take advantage of opportunities to meet senior management. You might not be very comfortable analyzing a company's cash flow statement, but you're probably pretty good at sizing up people after all, you've been doing it your entire life. Even if you own just 1 share of stock, you are entitled to attend a company's annual meeting, usually held in the spring. In addition, the Investor Relations Department might allow you to listen in on a company's quarterly updates, which are done by phone and often include top management. Increasingly, rebroadcasts of these updates are available by phone or Internet ask the company.