Early in my career I was a food retail analyst. Star performer those days was a Dutch company called Ahold. It had a long history and was growing fast in Europe, USA and several emerging markets. The CEO was a well known figure called Cees van der Hoeven, who regularly appeared in society columns. He was voted CEO of the year five times in a row

Naively I bought the hype and was positive about the company. I reasoned supermarkets are a safe bet, even in an economic downturn people would still buy food and other essentials. The management seemed to have a good track record acquiring other companies (more then 50 take overs in a 10 year period). A  fast growing company in a defensive sector, what more could an investor want?

In 2002 there was an abrupt change in fortune, a recently acquired subsidiary in the USA overstated their income. This led to future investigations into the dealings of the company, and more fraudulent behaviour was uncovered. This led to a sharp price fall, the supposedly safe investment was anything but safe.

Ahold was not the only company that had a charismatic CEO leading an apparent fast growing company. Lay of Enron, Ebbers of Worldcom and Kozlowski of Tyco are other famous sun kings. In the last few years the Sun Kings seem to be prevalent in the banking sector. Many famous financial institutions have ceased to exist or are in government hands. The narcissistic CEO who wants to grow his company faster than is realisticly possible is something that an investor has be on the look out for. Luckily there are many warning signs:

• The company grows a lot faster then other companies within the sector. Be especially careful if this growth is fuelled by take overs.
  
  
• The CEO is a well known figure with a regular appearance in the media.
  
  
• The payment package is excessive. Big bonuses and stock options “force” the CEO to increase the stock price to an unsustainable level.
  
  
• Look at the corporate governance structure, how strong and/or independent are the non-executives directors and the CFO.
  
  
• Try to get a feel for the corporate culture, is it about long term development with all of the stakeholders involved, or is it about short term profit and/or stock market performance.
  

So the next time you are looking at this stellar performing company have another good look. Ask yourself what kind of CEO am I dealing with? Is the performance sustainable or is there a possibility of fraudulent behaviour. This is especially important in a Bull market where the average Sun King blossoms. Investors are looking for ever increasing returns and the unscrupulous CEO might just give this retur . The question is howeverhow long will this excess return las?