There are two kinds of CEOs: innovators -- who come up with growth ideas -- and janitors -- who cut costs and instill discipline. There are times when it's best to invest in an innovator, and others when a janitor generates superior shareholder returns. What does this mean for stocks? Potential buys include Boeing Co. (NYSE: BA), Google, Inc. (NASDAQ: GOOG), and American International Group, Inc. (NYSE: AIG), and potential holds include Hewlett-Packard Co. (NASDAQ: HPQ), Microsoft Corp. (NASDAQ: MSFT), and Apple, Inc. (NASDAQ: AAPL).

This thought came to mind after reading an excerpt from the Wall Street Journal's Alan Murray's new book -- Revolt in the Boardroom: The New Rules of Power in Corporate America. It's a measure of his clout that he got the front page [subscription required] -- albeit of the Saturday edition. Murray's argument is that "boring" CEOs are now on the rise "in the wake of ... Enron" (a hackneyed expression that should be banned from the journalistic lexicon).

Following journalistic convention, Murray extrapolates a trend from three cases. He argues that boards have appointed "boring" CEOs -- I call them janitors since they are the executive equivalent of a clean up crew that comes in after a rock concert -- to avoid their predecessors' scandals. He cites the "boring" examples of Jim McNerney at Boeing, Martin Sullivan at AIG, and Mark Hurd at HP. They can boost the stock price for a while by cutting excess cost and instilling process discipline.

But they often fall down when it comes to generating revenue growth ideas. This is where investors can benefit from an innovator CEO -- the archetype of which is Apple's Steve Jobs. For investors there are two problems with such innovators:

Continue reading What kind of CEO should you invest in -- innovator or janitor?

What kind of CEO should you invest in -- innovator or janitor? originally appeared on BloggingStocks on Sat, 05 May 2007 11:10:00 EST. Please see our terms for use of feeds.