Chris Stott who manages the $970 million listed investment company WAM Capital Limited (ASX: WAM) recently penned an article titled ‘5 factors to look for when assessing management’.
In the article Mr Stott addressed five key attributes his team looks for when assessing the qualitative aspects of a company’s management.
Those five key criteria were:
Verbal and non-verbal communication
Track record of success
Alignment of remuneration and incentives
Leadership style
Consistency of ‘story’ over time
While all five of these factors are arguably as important as each other, let’s hone in on two…
Backing the jockey
Obviously some business people and entrepreneurs are better than others at creating value for shareholders. When an investor can identify a manager with a track record of success it can be sensible to back this proven, highly skilled manager.
Mr Stott outlined two examples where this strategy has previously worked.
Firstly, an ex-CEO of REA Group Limited (ASX: REA) went to work for the Asia-focussed real estate business iProperty Group Ltd (ASX: IPP). iProperty has also turned out to be a solid share market performer.
A second example was the when the team which had been successfully running financial services firm FlexiGroup Limited (ASX: FXL) left and joined Eclipx Group Ltd (ASX: ECX). Since listing in early 2015 the share price of Eclipx has increased by over 50%.
Skin in the game
Another important attribute to identify amongst managers is whether they “eat their own cooking.” Incentives, remuneration structures and share ownership all play a critical role in achieving the right motivations from decision makers.
Mr Stott highlighted two firms, Corporate Travel Management Ltd (ASX: CTD) and Technology One Limited (ASX: TNE) where he believed the alignment of remuneration and incentives has been successfully achieved.
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