Judging Management – 2

  • Interest of the Management should be aligned, greater holding of equities the better.
  • Buying from the open market. Beware of preferential issues.
  • Longer the tenure of  the CEO the better.
  • Commentary during bad times. Is the management forthcoming about mistakes.
  • Management compensation to profits ratio, the lower the better.
  • If profits increase, then special or normal dividends should be increased. Best is to have a stated dividend policy.
  • Flamboyant and acquisition oriented managements must be avoided.
  • Acquisition should be measured on per share earnings. If management gets compensated as a percentage of profits, their yardstick is different.
  • Boards of most companies are puppets, as such, they will not stand for the interests of the minority.
  • Google past fraud, imprisonment, court cases against management
  • Related party transactions, complex structure of subsidiaries, lack of commentary in management discussion section are red flags.
  • Have the capital allocation decisions been made with a long term view.
  • Does the management take frequent impairment?
  • Does the company try to smoother earnings by taking impairment in the quarter with abnormal gain?
  • Does the management always meets its target? Hint: It shouldn’t.