How to recognize bad management?

[LongHaul]

How to recognize bad management?

 

I am curious what characteristics investors on this board have noticed to recognize bad management besides the more obvious signs - all else equal - low margins, less organic sales growth than peers, continually investing in money losing projects.

 

Any nuances that people have learned over the years are appreciated.

 

 

[yadayada]

If they use a lot of buzzwords and constantly come up with 'x step strategic plans'. Overpromising. Excessive compensation - crooks are often bad managers. They rely on being the confidence man to get what they want, not on their skills.

 

This video is also a good study on good vs mediocre CEO's. Notice how Musk answers every probing question straightforward in a informative manner. The CEO of the other company constantly starts out with some unrelated story that makes him look good when he is asked a question that answered with a honest straightforward question would make him look bad.

 

Basicly things are bad, they will spin around the truth, stay vague and tell positive unrelated anecdotes to throw up a smoke screen. If they are good and honest, they will tell it like it is.

 

Generally I would not trust people who answer a probing question with 'well look I want to bias you and put myself in a good light by telling this unrelated story/anecdote before I vaguely answer your question'. If they have nothing to hide they could answer it quickly without the horseshit.

 

[Guest longinvestor]

Bad management to me boils down to one thing. Not eating one's own cooking. "Bad" to me, looking to put my money in a business where the CEO has not done it with their own money, despite being in the business for a long time. Notable stars here are Watsa/Buffett. All other "bad" qualities are subsumed by a giant ownership stake.

[yadayada]

Bad management to me boils down to one thing. Not eating one's own cooking. "Bad" to me, looking to put my money in a business where the CEO has not done it with their own money, despite being in the business for a long time. Notable stars here are Watsa/Buffett. All other "bad" qualities are subsumed by a giant ownership stake.

Wouldn't say this is always true, Malone didn't do it? TCI was one of the best performing stocks over that long timeframe. Yet he got little of the pay off untill the infamous Liberty media thing.

[augustabound]

If they use a lot of buzzwords and constantly come up with 'x step strategic plans'.

 

I usually lose interest in an annual report if the CEO blathers on about "Vision 2020" or some other P.R. catch phrase.

Tell me in plain English why something didn't work and what you're going to do to fix it.

 

 

 

 

[Liberty]

"Happy families are all alike; every unhappy family is unhappy in its own way."

 

I think that goes for management too. There are lots of ways to be bad.

[oddballstocks]

"Happy families are all alike; every unhappy family is unhappy in its own way."

 

I think that goes for management too. There are lots of ways to be bad.

 

Great insight.  I would add a second one, bad management can mean good returns for shareholders.  And good management can mean bad returns for shareholders.

 

Bad management could run the place on a shoestring, pay poorly, demotivate etc and earn high margins.  Good managers could hire well, pay well, respect their employees and pay out more benefits depressing shareholder return.

 

So good/bad could depend on perspective.  I like to browse glassdoor, some crazy stuff on there.

 

Here's another way, recommended to me by a fund manager.  He contacts ex-employees via LinkedIn.  Said they're "ex" so expect them to say some bad things.  But he said it's the themes that matter, if everyone who's ever left is praising the CEO then it's probably true.  If all the people who've left have the same gripes they're probably true as well.  People who've left are much more willing to talk about former employers. 

[bennycx]

For investing purposes, I would just assume they are bad/mediocre unless they prove otherwise. You don't have to invest in so many companies.

[LongHaul]

Thanks for the great responses everyone.

 

"Basicly things are bad, they will spin around the truth, stay vague and tell positive unrelated anecdotes to throw up a smoke screen. If they are good and honest, they will tell it like it is. "

 

Well written Yadayada.  I have had some experience with these B.S. types and they are repulsive.  It is far more effective and efficient to be honest.

[Guest longinvestor]

Thanks for the great responses everyone.

 

"Basicly things are bad, they will spin around the truth, stay vague and tell positive unrelated anecdotes to throw up a smoke screen. If they are good and honest, they will tell it like it is. "

 

Well written Yadayada.  I have had some experience with these B.S. types and they are repulsive.  It is far more effective and efficient to be honest.

 

"If the accounting is hard to understand, they don't want you to" Warren Buffett

[yadayada]

I love that bit where Louis CK asks Rumsfeld if he is a lizard on some radio show and then Rumsfeld goes off to tell some story about some time when he met a really nice couple when he was with his wife, and how they invited Rumsfeld and his wife to dinner or something, because they liked him so much.

 

It is like a reflex for these people :D .  Here is the clip, really funny:

[augustabound]

I'm not totally sure this belongs here but I've heard and read some of these on CC's and letters.

 

Some are over simplistic and you can read into something that's not there, but if someone sounds condescending, there's usually a reason.