How to Invest in Good Management when Buying Stocks
In today’s Money Morning…great stocks require great leaders…finding the right person for the right job…it’s a skill that any good stock picker needs…and more…
Have you been following the Cleanaway Waste Management Ltd [ASX:CWY] bullying saga?
It’s been one of the most gripping ASX narratives for the entirety of 2020. A narrative about a seemingly rogue CEO — Vik Bansal — and his aggressive management style.
To make a long story short, Bansal has been accused of ‘bullying conduct’ by four former employees. Complaints that have now painted Bansal as a leader who embraced a hostile working environment. Fostering a ‘culture of bullying and harassment’.
Naturally, as these allegations came to light, it hit Cleanaway’s share price like a ton of bricks.
No investor wants to deal with negatively perceived managers. Especially if those perceptions could jeopardise the performance of the stock.
That’s why many were expecting a fiery AGM yesterday. An event that could have sparked the ultimate downfall of Bansal for good…
But it didn’t.
Instead, nearly 90% of Cleanaway’s investors chose to back the board. A board that has stood by Bansal throughout this entire mess.
That doesn’t mean these allegations will go away, however. Nor does it mean that it is an endorsement of Bansal’s aggressive style. That is why he has apologised and promised to do better.
But, what it does show you is the value of good management.
Something that every investor should be looking for from their stocks.
Great stocks require great leaders
It’s no secret that management can make or break a company.
How a CEO conducts themselves and their strategy is imperative. They are the spearhead of any and all operations.
That’s why the revelations about Bansal were so intriguing.
Bullying or not — clearly his approach was too aggressive for some. But this is far from uncommon when it comes to CEOs.
There are plenty of notorious business leaders; both past and present. Many of whom are also wildly successful.
I’m sure you’ve heard or read about some psychopathic leaders in your time.
Arguably, that is the entire point though. Being a CEO isn’t an easy job — it requires a certain type of person. Someone who isn’t afraid to be aggressive; just in the right way.
It’s all about striking the right balance — a balance that Bansal has clearly overestimated.
But, at the end of the day, it is hard to argue with his results.
Putting the allegations to the side for a moment, investors can’t forget that in his five-year tenure Bansal has turned Cleanaway around. Overseeing a 300% rise in the company’s share price.
Prior to his appointment as CEO, Cleanaway was going nowhere. They had been a stagnant company for close to five years. Seeing little improvement in terms of shareholder returns.
Bansal changed all that. Bringing the company back out of obscurity. Albeit, now with an asterisk attached to it.
Love him or hate him, he did what needed to be done to fix Cleanaway.
Because of that, you cannot deny that he is a successful businessman. Even if he is a little rough around the edges.
And for investors, that is exactly the kind of distinction that you need to look for in your stocks. Leadership that can deliver the results you need — even if it takes some extremes.
Finding the right person for the right job
My point is that great management is invaluable. Sometimes even more so than a great business.
That’s why for investors, before you put any money into a stock, you should look at the management. Not just to do your due diligence, but also to get an idea of how they operate.
I’m not just talking about the CEO either. A company’s board and chairman are just as important. After all, their job is to ensure the CEO is right for the business.
Fortunately, most management teams can strike the right balance. From an outsider’s perspective, anyway. But there are always exceptions.
For example, some boards are often willing to settle for mediocrity. Unwilling to remove an underperforming CEO. Especially in scenarios where the company trades sideways for several years.
There is nothing worse than a stagnant company that continues to make promises of growth, only to fail on delivering them.
Indeed, that is what made Cleanaway’s AGM so telling. Not just because Banal has delivered the results the company needed, but because he also has the full support of his board.
It is something that every investor can learn from.
Especially now that we’re in the midst of a stock picker’s market.
If you’re looking to make some serious gains, you need to find serious companies. And that means looking for management teams that are unflinching. Willing to do whatever it takes (within reason) to achieve their goals.
It’s a skill that any good stock picker needs. And right now, it’s the perfect time to start learning.
Because while it may not be an exact science. Or necessarily be easy to deduce. Finding the right management can be the difference between a win or a loss.
Even if you don’t always agree with their methods…
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.