While successful investing can depend on a vast number of factors -- not to mention a degree of good fortune -- most market participants would agree that having a skilled management team in charge can be vital if a company is to perform consistently well over the long term. Having a great product or service will only take you so far.
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.
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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.