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Great companies can be ruined by poor management. Struggling companies can be lead to greatness when they are guided by great managers.
Here are some questions to ask yourself when judging the management of a company.
Track record. What happened with other companies when he was on their board? How has this company traveled since he has been on the board?
Credentials. Not just formal education but also what positions has he held in the past. Do the positions he was in complement his current position?
Team. Does the CEO get along with the board? Has he attracted other highly regarded professionals onto his team? It’s normally a good sign when they bring former colleagues with them, but it can have a negative effect. An example is where the (poor quality) new CEO of an Australian telco parachuted his colleagues from a previous company into top executive positions. The fact that they were no better than their boss only added to the poor morale among existing staff.
Good character. Seek out opportunities to talk to the manager. AGMs and industry conferences are good places to do this. Keep an eye on the newspaper gossip columns and any other news coverage of the manager. But don’t bother to read ‘puff pieces’ – personal profiles in magazines where a journalist interviews the manager, those are paid for by the company on the advice of an image consultant or public relations company.
Who are his friends? We can tell a lot about a person from the company he keeps. These are the people who influence his decisions. You need to pay attention to work this out. Check whether they are on the board of other companies. Who else is on the same boards? Who, outside the company, does he most often talk about?
Does he have vision? Is he leading the company in a clear direction? Does he set out the company’s goals in a clear way? Read the Chairman’s address in the annual report, particularly the end, where he talks about the future.
Demonstrated honesty.
Caring for the shareholders. Does he stay and mingle after a company meeting or does he only chat with people he knows? Does the receptionist put your call through to him if you call the company (don’t bother to try this if the company is bigger than half a billion dollars). What steps does he take to ensure the company continues to pay dividends? Does he talk to shareholders as if they are owners?
Share ownership. Does he have skin in the game? It’s always a bit of a consolation to me when I know the director is losing money too. Keep an eye on reports of director’s share trades. But don’t panic if they sell, it doesn’t always mean the company is going to the dogs. Sometimes they need the cash to buy a yacht.
As you can see, judging a company’s management is more an art than a science. It’s difficult to do, that is why you won’t often see articles about it in the press. With experience, you are better able to read people. Paying attention to financial news will also help.