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How To Assess A Company’s Managers

management

In this article, we will answer one Foolish questions asked by one of our Foolish readers. This reader asked when we are speaking to the management of a company in person, what are the signs to look out for in order to assess the quality of their character.

There are various ways to assess the management. One of them is certainly to speak to the management face-to-face. Most of us do not have the luxury of meeting the management for lunch to ask them questions, unless we are investing huge amounts of money which leads to us being a substantial shareholder of the company (upwards of 5% of the company).

Most of us would probably have to settle for a chat during the annual general meeting (AGM) of the company or during an Investor Relations day organized by the company, if any. To go for an AGM if you do not already own shares in the company, you could email the Investor Relations to ask if you can attend as an observer. Some companies allow that. The AGM is a great place to observe subtle clues about management that may not be possible to know just by poring over annual reports.

Once at an AGM, grab a front-row seat just in front of the management so that you can observe the body language of the management when they speak. Are they uncomfortable and mince their words? Are they forthcoming and candid? Does the Chief Executive Officer thank his team for a year well done?

During the AGM, you can ask some questions like:

  •  What are some of the mistakes you have done over the past year and how did you rectify them?
  • Why do customers buy your products over those of your competitors?
  • What are you doing that your competitors aren’t doing yet?
  • What is the current biggest threat to the company and industry?
  • Are there any important sectors of your market which you don’t address?
  • What is the long-term outlook of the company? Where do you see yourself 5 to 10 years into the future?

Closely observe how they answer the questions i.e. their body language. After the AGM, the management will usually linger around to chat with shareholders. You can ask more questions during this period. Notice how the managers and directors carry themselves when interacting with people. Are they humble? Are they approachable and friendly? Are they interested in the concerns of the shareholders? It is said that in communication, more than 50% of it constitutes the body language. Observing this part of a person, which certainly cannot be gleamed by merely reading, pays.

Furthermore, you can also pose questions to the non-shareholders and non-stakeholders like the lower-rank workers and deliveryman to find out how the management treats them. Do they treat them with respect and smile at them? Are they friendly towards them? This can be one of the best ways to learn more about a company’s management.

A strong management is the backbone of any successful company. The managers of a company are directly responsible for creating value for the company, and ultimately shareholders. While a high share price might not necessarily indicate good management, good managers will likely be able to grow and maintain a share’s price over the long-term. Thus, from all of us here at The Motley Fool Singapore, we thank this reader for asking us this question, and for giving us a chance to talk about how to assess the management of a company.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.