Management is important, at least on the downside. Using the horse and the jockey analogy, the jockey can jump off the horse and lose the race for you.
Avoid management who exhibit the following signs:
- Speculators, Rather Than Operators
Management, who behave like speculators, are distracted from the daily business operations. Some choose to take on short-term debt with variable interest rates, so that they could show off their interest rate forecasting abilities. Some invest the company's excess cash in stocks, funds and other exotic instruments in the name of preserving the purchasing power of the company's cash. The management of a company should be operators and investors; they should not act like traders.
- Building Empires in the Air
Some use M&A as a tool to create the illusion of size and growth and leverage on increased size of the enterprise to bargain for higher pay and bonuses. They have no patience and clues for growing the business organically, and are looking for a quick fix.
- Fattening Their Own Pockets
They are excessively paid through a fat compensation package including share options and choose not to pay dividends to shareholders. They are only interested in milking the company for their own personal interests.
- Too Many Distractions
Corporate aircraft, company-owned yachts and lavish corporate offices should worry investors. In addition, active outside interests, public family spats, and dates with movie stars are not exactly the things investors want to see.
- Management Who Do Not Even Stay
A high attrition rate among top management is worrying. They know what you don't, and it is not pleasant from the looks of it.
Avoid management who exhibit the following signs:
- Speculators, Rather Than Operators
Management, who behave like speculators, are distracted from the daily business operations. Some choose to take on short-term debt with variable interest rates, so that they could show off their interest rate forecasting abilities. Some invest the company's excess cash in stocks, funds and other exotic instruments in the name of preserving the purchasing power of the company's cash. The management of a company should be operators and investors; they should not act like traders.
- Building Empires in the Air
Some use M&A as a tool to create the illusion of size and growth and leverage on increased size of the enterprise to bargain for higher pay and bonuses. They have no patience and clues for growing the business organically, and are looking for a quick fix.
- Fattening Their Own Pockets
They are excessively paid through a fat compensation package including share options and choose not to pay dividends to shareholders. They are only interested in milking the company for their own personal interests.
- Too Many Distractions
Corporate aircraft, company-owned yachts and lavish corporate offices should worry investors. In addition, active outside interests, public family spats, and dates with movie stars are not exactly the things investors want to see.
- Management Who Do Not Even Stay
A high attrition rate among top management is worrying. They know what you don't, and it is not pleasant from the looks of it.
