How important is a management team when choosing an investment?
American business magazine Fortune dropped through the letterbox yesterday. Late last night, after finally finishing work for the day, I sat down to read it, glass of wine in hand.
This issue, it turned out, had a theme: corporate leadership. There was an excellent feature by one of the magazine's best writers, Geoff Colvin, who I've had the pleasure of interviewing. There was a good review of how Procter & Gamble builds a deep bench of executive talent, and how earlier this year it reached into that pool of talent to select a new CEO. And -- yes! -- a Fortune list, highlighting the world's 25 best businesses at building great leaders.
Missing link
Yet there's an element of irony here. Business magazines, newspapers, books -- and of course, businesses themselves -- make much of business leadership. Successful leaders are lionised, showered with largesse, and seen as role models for entire legions of business school graduates.
Much of which, as investors, passes us by. When we look at a company, we tend to look at cold hard metrics: measures such as a company's P/E, its yield, its gearing and its earnings per share.
Very rarely, in our discussions of companies -- both in Motley Fool articles such as these, or in the threads that make up our discussion boards -- do we tend to dissect the skills, attributes and prowess of a company's leadership.
And when we do -- and I'm thinking more of the discussion boards, here -- the association is usually negative. A given company's leadership is collectively dismissed as a set of muppets: sell! Another company's leaders can't be trusted: sell! And still another company's leaders have a habit of sleepwalking into disaster: sell!
And yet the market itself does take note of leadership changes. The most recent example: the rise in the share price at Marks & Spencer (LSE: MKS) and the consequent fall in the share price at supermarket owner William Morrison (LSE: MRW) when Morrison CEO Marc Bolland announced his move to Marks & Spencer to take over from Sir Stuart Rose.
Eyeball the talent
So should we take more interest in the people leading the businesses in which we invest? Is the calibre of a company's leadership a missing dimension in how many of us approach investing decisions?
Some Fools clearly think so. A group of Fools from the discussion boards, for instance, meets monthly for dinner, and regularly invites senior directors -- generally of AIM companies -- to make presentations about the strengths of their businesses as investment opportunities.
AliceinWonder, another Fool, is a prolific attendee of company AGMs, where investors can eyeball not just the top executive leadership but the entire board of directors -- or at least, as AliceinWonder would say if he was here, those who take the trouble to turn up.
Does it matter?
At the other end of the corporate size spectrum, where I tend to put my money, it's a tougher call. A certain standard of leadership goes with the job. In today's rigorous selection procedures for FTSE 100 CEOs, dummies don't make the shortlist -- and those candidates who do make the shortlist will generally have a track record of leadership achievement behind them.
So while bad leadership can harm a share, good leadership is simply 'business as usual'. Although there's a case, I'm sure, to be made in respect of exceptional leadership. Thinking of my own investments, I'm fairly sure that Sir Terry Leahy of Tesco (LSE: TSCO) falls into that category.
And Fortune's list of what it calls 'the world's 25 best leader machines'? Were there any UK-based businesses on the list? No -- not one. Even though nine of the 25 companies were outside North America.
So should we be worried by this? Does leadership matter? What do you think? Comments in the box below, please.
More from Malcolm Wheatley:
Malcolm holds shares in Tesco.
