The Equity Edge: A Complete Guide to Building Wealth Through the Stock Market by Mark Jeavons

Author:Mark Jeavons [Jeavons, Mark]
Language: eng
Format: epub
Tags: Business & Economics, Investments & Securities, General, Stocks
ISBN: 9780857197993
Google: GFvXDwAAQBAJ
Publisher: HarrimanHouse
Published: 2020-03-24T20:22:46+00:00

Management

The backbone of every successful company is a strong management team. Management is a key factor in the success of a company as it makes the strategic decisions and therefore serves a crucial function in determining the fate of the company. Great management can help steer a company to financial success as they are better able to construct and execute a good business plan, which helps achieve its main aims and goals.

Leadership

The first step in looking at management is to identify the key people running the company. This includes the chairman, chief executive officer (CEO) and chief financial officer (CFO), as well as operational managers. Every listed company has a corporate information section on its website about the management. This usually includes a biography on each executive with their employment history, educational background and any applicable achievements.

You want to see executives that have either been with the company a long time (and possibly worked their way up the business hierarchy) or have a transferable background to the company they are working for. If an executive has had a long tenure with the company, it is likely that the manager is a successful and profitable manager (as otherwise the board of directors would have made changes). What you don’t want to see are executives on the board that do not have a relevant background for the company or sector they are currently working in. It is worth identifying where executives have worked previously to see how they have performed. It is a good sign if executives saw positive results during their tenure with other companies.

When a founder or chief executive has been the driving force behind a company for many years you need to consider what succession plans are in place as well as how the business will cope once the key manager steps down from that position. When the change of management happens, you need to review growth assumptions and potentially make them more conservative to reflect the loss of leadership. You should be wary of companies where the succession risk is high.

If the company has recently experienced a period of poor performance, management restructuring may be a positive sign that changes are being made in the hope of improving that outlook. However, if several changes to management have been made over the previous few years it is indicative of a company in real trouble and should therefore be avoided. A management team consisting of people who come from completely unrelated industries should raise questions about their competency.

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