6-08 Management


As a potential investor, you need to know about the quality of the management team, the continuity of the management team, and projected future stability of the management team. After all, the performance of any organization is ultimately related to the leadership and direction provided by its leaders.

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History is full of examples of CEOs moving from one company to the next, or retiring, or getting fired. Remember when Steve Jobs retired from Apple? The company and the stock seemed to get lost without any new product development. Shareholders were crying to have Steve Jobs come back, and when he did he led a new era of product development at Apple that included the iPod and the iPhone.

Now that Steve Jobs is battling cancer, what implication does that have for Apple’s stock? Also think about other key leaders…What would happen to Microsoft if Bill Gates quit? What would happen to Google if Sergei resigned?

In more common terms, think about a marketing manager at Company A that decides to eliminate a successful branded character “spokesperson” (like Tony the Tiger or the Cheerios bee) against all wise advice and evidence that the “spokesperson” still works extremely well for the company. Predictably, sales of the product fall off. As long as that marketing manager is in place making unwise decisions, the company’s earnings may be negatively affected. Once he or she is given the boot and the “spokesperson” returns, earnings increase and stabilize.

You need to develop a solid knowledge of a company’s management team to keep track of this information. Mutual fund managers, who are often responsible for investing millions in a single company, will often personally visit with management teams and do extensive research on the background and experiences of a CEOs in order to gauge the quality of a company’s leadership.

You won’t be able to do such extensive management research, but over time, you will start to recognize the names of people who seem to always land in successful companies and help those companies to grow (or fail!).