In the world of investing, a business is only as good as the people who are employed in it. Even a great company will ultimately fail if the people managing it are not competent. The importance of the quality of the management team running a company cannot be overstated as the return on your investment, if you buy shares in it, depends on it.

Fortunately there are a few approaches that the potential investor can take in attempting to identify talented and committed management.

1.     Do They Know Where They Are Going?

Has the management clearly articulated a vision for the business and do they know how to get there? The vision for a business is simply its mission over time, and there should be a clearly measurable way of assessing when and how the business will achieve its goals. The investor should be wary of company reports that are full of marketing spin and which fail to provide SMART (specific, measurable, attainable, relevant and timely) objectives.

2.     In Business There Are No Excuses

The investor should be wary of annual reports or market updates that provide excuses for poor performance. Pay particular attention to the words used by the Chief Executive and the Chairman of the company in justifying its results. It’s what is not said that matters most.

‘Of one thing be certain: if a CEO is enthused about a particularly foolish acquisition, both his internal staff and his outside advisors will come up with whatever projections are needed to justify his stance. Only in fairy tales are emperors told that they are naked’.

Warren Buffet

3.     Does The Management Have The Owners Eye?

Look for evidence that the management have a vested interest in the future success of the business. Management who have a portion of their wealth linked to the future prosperity of the business may be no bad thing, whilst a finance director suddenly selling his entire holding of shares may warrant close attention.

4.     Avoid Excessive Remuneration

Look at what the Chief Executive and the management pay themselves within the context of the value of the business and their contribution to it.  Excessive pay and rewards can be indicative of a business that is not being run in the best interest of the shareholders.

Finally look at the track record of the management team. When deciding on whether to invest your money into a business, always consider the quality of the people you are trusting with your investment. If they are good at losing money, guess what might happen to yours? By way of contrast, if they have a clear vision, mission and business plan backed up by a proven track record of increasing shareholder value, it may be worthy of further consideration.

Where management is concerned, always invest in quality.

 Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie