Judging the quality of people running your companies

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Fundamental to the success of any company, and therefore of great importance to investors, is the quality of its management and staff. The difference between the outstanding company and the average or mediocre company is the people running the organisation.  Philip Fisher, the father of growth investing,  identifies four different characteristics to define quality of these people:

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  • Business ability
  • Integrity
  • Outstanding labour and personal relationships
  • Outstanding executive relationships

I’ll tackle the first of these today and the others in tomorrow’s Newsletter.

Business Ability

Under business ability there are two different skills; first is the efficient day-to-day running of the company.  Managers should be skilled at everyday tasks, and be constantly on the lookout for ways of improving efficiency in every part of the business.

There is no time for them to sit back and relax when everything seems to be going well.

They must also be prepared to accept that things do go wrong, and failures happen, especially if they are working at the leading edge of technology.

The good manager will not overly criticise those who fail, but be more concerned with finding a solution to the failure and moving on efficiently, accepting that failure is part of the process of advancement.

The company that is unwilling to take chances, and is satisfied with ticking along, will in the end become vulnerable to more daring competitors.

Secondly the management team must concern themselves with the long-range future; they need the talent to look ahead and ensure that the business is on track for significant future growth without taking undue risks.

Fisher says that many companies have managers that are either good at day-to-day matters, or at long range planning, but for real success, both are necessary.

Managers must be encouraged to continually challenge what is now being done.  Pointing out that a way of doing things that worked well in the past is not sufficient justification for it to be maintained.  The rigid company that is not constantly challenging itself will sooner or later find itself in decline.

Long-term prospects can be damaged by focusing on producing unduly high short-term profits because of the effect such a policy might have on customers and suppliers.

It is important that companies keep good relations with their customers and suppliers. Companies can, for example, refrain from being overly aggressive in obtaining the keenest terms from suppliers and squeezin  ……To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

 

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