In recent years, there have been many examples of companies being turned around or improved by strong management. Both Tesco and Morrisons appear to be on the road to recovery thanks to the efforts of Dave Lewis and David Potts respectively. Under the direction of Mark Wilson, insurer Aviva finally looks like it might be turning a corner. 

Sadly, it’s not hard to recall plenty of examples of dubious corporate governance. Following revelations over working conditions at its warehouses, Sports Direct managed to alienate many investors during 2016 through engaging in a very public spat with politicians. More recently, both Rolls-Royce and BT have made headlines, with the former agreeing to pay a £671m fine for bribery and the latter revealing an accounting scandal at its operations in Italy.

Just because a company occupies a lofty position in the market doesn’t make it immune to setbacks of its own making.

So, what should you be looking for?

Defining a great leader or team isn’t as easy as it might sound. Although the vast majority of successful companies are led by highly driven individuals, focusing on the personalities of those in charge isn’t always helpful. Steve Jobs reinvigorated Apple and Tim Cooke made it into one of most valuable businesses in the world but their management styles appear very different, as far as we can tell. As a result, it makes sense to concentrate on hard facts.

One thing worth checking is how long a CEO has been in charge. Martin Sorrell has been at the helm of global advertising giant WPP since 1986. Last year, he was ranked second in the Harvard Business Review’s list of the world’s 100 best performing CEOs based on overall shareholder returns and the increase in market capitalisation over his entire tenure. If you’d bought WPP in 1997, your money would have increased seven-fold, excluding any dividends you may have reinvested.

Despite recent tough times, many would agree that Simon Wolfson has also done a stellar job at Next since arriving in 2001. Shares in the retailer five-bagged from 2001 to 2017.  If you’d managed to sell at their peak 18 months ago, you would have multiplied your capital well over nine times, again with dividends excluded. Find the next WPP or Next and your dreams of early retirement may not feel so ambitious. 

Even if a CEO is relatively new, this shouldn’t stop investors from scrutinising his or her track record. Do they have a history of creating shareholder value? Are there any black marks that cause you to doubt their ability?

Another thing worth checking is just how much ‘skin in the game’ management have. You have to question whether a CEO with a relatively insignificant holding in the company will be quite as focused on creating shareholder value as they would be if at least a proportion of their own wealth was at stake. Executive compensation packages that focus more on share awards than bonuses could be an encouraging sign.

The post Can good management make you a million? appeared first on The Motley Fool UK.

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Paul Summers owns shares in Rolls-Royce. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

I’m paraphrasing slightly, but Mr Buffett’s point was that it’s less risky to buy firms with good fundamentals than to pin your hopes on difficult turnaround situations.

It’s a good principle, but as with any rule, there are times when it’s worth questioning.

In my own portfolio, I believe recent boardroom changes could make a big difference at both Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) and Barclays (LSE: BARC) (NYSE: BCS.US).

Barclays

The sudden departure of Barclays’ chief executive Antony Jenkins has come sooner than expected, but is not a surprise.

Barclays’ new chairman, John McFarlane, is known as ‘Mac the knife’ for good reason.

On 17 July, after less than three months in the role of non-executive chairman, Mr McFarlane will become executive chairman of Barclays — effectively both chairman and chief executive. He will be in charge of all aspects of the bank’s strategy and operations.

Shares in Barclays have risen by 4% since the news became public.

The City has high hopes that Mr McFarlane will be able to repeat the successes of his time at insurer Aviva. In less than three years, Mr McFarlane presided over a 95% rise in Aviva’s share price, thanks to a ruthlessly effective turnaround plan (and a new chief executive).

Mr McFarlane delivered similar results in his previous role as chief executive of Australia and New Zealand Banking Group Limited.

Many investors, including me, bought shares in Barclays for their deep discount to book value and low valuation relative to historic earnings.

We’ll now have to wait to see if Mr McFarlane’s arrival is the catalyst needed to complete the bank’s recovery.

Tesco

Tesco’s problems have been well documented. Yet the firm remains the UK’s largest supermarket, with 28.6% of the grocery market. That’s more than Wm Morrison Supermarkets and J Sainsbury combined.

Tesco has both a new chairman, John Allan, and a newish chief executive, Dave Lewis. Mr Lewis has a sterling track record from his time as a product chief at Unilever, but it’s Mr Allan I want to focus on here.

His most recent role was as chairman of Dixons Carphone, where he oversaw the merger between Dixons and Carphone Warehouse. Shares in the newly-merged company have risen by 32% since the merger completed, in August 2014.

Earlier in his career, Mr Allan was chief executive of logistics firms Ocean Group and then of Exel plc, which he created by merging Ocean with NFC in 2000. Exel was then sold to Deutsche Post in 2005. Mr Allan clearly has a track record of transforming large, manpower-intensive organisations.

Tesco shares currently trade on a 2015/16 forecast P/E of 23, and offer a forecast yield of less than 1%.

Net debt of £9.9bn is far too high.

On the face of it, this isn’t an attractive prospect.

However, I doubt that Mr Allan would have accepted this role if he thought that Tesco was a business doomed to a gradual decline.

I expect to see further changes in the supermarket sector, and suspect that with the help of its new management team, Tesco may be one of the eventual winners.

For me, Tesco remains a long-term hold.

The post Back The Boss, Not The Firm: Should You Buy Tesco PLC & Barclays PLC? appeared first on The Motley Fool UK.

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Roland Head owns shares of Tesco, Barclays, Aviva, Unilever and Wm Morrison Supermarkets. The Motley Fool UK has recommended Barclays. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Kingfisher

Europe’s largest retailer of DIY home improvement products, Kingfisher (LSE: KGF) has struggled with weak demand in the French market, loss-making stores and uncooperative divisions. While former CEO Ian Cheshire held his title during a time when the company’s share price more than doubled, like-for-like sales were disappointing and the business had not been able to fully exploit huge opportunities in the UK housing market.

Significant changes were needed. Castorama chief executive Véronique Laury replaced Cheshire as group CEO this year, and the firm has put forth several initiatives in an effort to cut costs and spur demand. Inventory management is currently under scrutiny. Only 7,000 of its nearly 400,000 stock-keeping units (SKUs) are being sold at more than one of Kingfisher’s top five operating companies. This substantial inefficiency, Laury says, stems from a silo structure that breeds poor inter-company co-ordination. By restructuring its divisions, unifying corporate activities and standardising shared processes, the company hopes to leverage the company’s underutilised scale.

Kingfisher believes its customers are too limited in their shopping experiences. Instead of solely offering a traditional in-store format, the company is investing heavily to provide additional channels – web and catalogue sales – through which customers can conveniently make their purchases. If successful, Kingfisher can stimulate sales growth, curtail its fixed expenses and improve its margins.

Morrisons

Britain’s fourth-largest supermarket chain Morrisons (LSE: MRW) sacked its CEO in February. During Dalton Philips’ five-year tenure as chief executive, Morrisons’ performance has been truly dreadful. Like-for-like sales have plummeted, return on capital employed has deteriorated and market share has waned.

Morrisons has relentlessly pointed to outdated IT systems and difficult economic conditions as reasons for its misfortune. In a bid to stem the exodus of patrons, the company began providing additional channels – online and convenience sales – through which customers could shop. Both initiatives resulted in disastrous performance. With its managers’ negligible experience in the online grocery marketplace, Morrisons chose to acquire a company that perhaps knew a bit more. In 2011, Morrisons bought a nursery supplies retailer for £70m; of the acquisition price, £24m related to goodwill, which Morrisons claimed was an amount worth paying to educate senior managers about the e-commerce business. Morrisons sold this business in 2014 for £2m.

For the past half-decade, each of Morrisons’ annual reports describe largely the same corporate goals – to capture growth through e-commerce and convenience stores; to fuel sales volume by cutting prices; and to expand the scope of vertical integration by sourcing and processing food through Morrisons’ own facilities. Three months into his role, CEO David Potts has yet to announce any significant deviation from these strategies. And that presents an interesting opportunity for investors – with low expectations and a share price beaten down by the market, some new idea – any new idea – could be a catalyst of resurgence.

Tesco

Tesco (LSE: TSCO) shareholders have had to endure a wild ride over the past few years. During a calamitous period that included falling turnover, tumbling like-for-like sales performance and an accounting scandal that led to the suspension of four senior executives, shares have been bid down to levels not seen in more than a decade. Tesco sacked its chief executive last July and, since taking the reins in September, Dave Lewis has been trying desperately to steer the juggernaut away from further troubles. Under his direction, Tesco’s major strategic initiatives include downsizing the product ranges, boosting the availability of the most popular products and prioritising the UK business. So far, so good. While the credit may not be solely due to these initiatives, the decline in like-for-like sales is slowing and investors are becoming increasingly optimistic about the company’s outlook: shares have rallied 20% since hitting a decade-long bottom last December.

The post How Management Shakeups Could Mean Buying Opportunities for Kingfisher Plc, WM Morrison Supermarkets PLC & Tesco PLC appeared first on The Motley Fool UK.

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R.D. Greengold has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.