When Leadership Counts (A Sports Analogy)
Matt is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being a born and bred Hoosier residing in the city less commonly known as "Naptown" (aka Indianapolis), the Peyton Manning controversy has spread in bubonic fashion through every crevice of the city. As sad as I personally am to see Peyton Manning go, I want to focus on a different person in this fiasco, owner Jim Irsay. Irsay isn't known for his soft spoken subtleties. In actuality he is known for his brashness, overworked twitter account, and overwhelming eccentric side.
It doesn't matter if you are looking at a sports organization, publicly traded company, or a mom and pop shop: leadership matters. Fly or flail, finish or fail, these outcomes are in sync with management's ability to lead the company down the right path. Irsay, despite the apparent limitations discussed above, is a fantastic leader. You might be thinking that I'm crazy for supporting a coach that let go of the greatest quarterback of all time (bias intended), but here are some of the leadership qualities that I saw throughout this process:
1) The emotional decision would have been to keep Peyton Manning forever, build a monument of him, and make everyone happy. Right decision or not, Irsay made a decision that was long-term focused.
2) No matter what, the numbers have to make sense. Ignoring salary cap issues would have caused a new dynasty of Saint Louis Ram proportions, in that they would have been hamstrung for a decade.
3) Investing in the next generation was Irsay's focus. To build a long-term enterprise, you must invest in talent under the big dogs, because some day those that lead will retire.
I think by now you can see how I am going to tie this into investing and investment analysis. I think far too often we are fed some numbers from ABC company, the cash flows look tasty, the product is sexy, and prospects for the company are more likely than you breaking a sweat during a Richard Simmons work out tape. We get excited, invest our money, and are unimpressed by our returns 1-2 years later because the company was hot for a moment, but was not built to last.
What we neglect is leadership research. How many times have you read even one article about the leader of a company before making an investment decision? Do you ask questions in investment analysis such as:
- Does management make impulsive near-sighted decisions for short-term results?
- Does management have a long-term plan and stick to it, no matter what affect that has on quarterly results?
- Does management strategically invest in the next leader, the next CEO, the next COO, or the next CFO?
Granted, this information is not always available, or perhaps not easy to find, but I would say that it exists more than you might think. Check out the investor section of prospective companies. Search Forbes magazine, Wall Street Journal, or other publications that might do write-ups on the leadership at the company in focus.
Here is a real life example that I have used my investing analysis. Ford (NYSE: F) is one of those companies that has strong leadership and has exhibited some of the qualities I have highlighted above. Whether it is the "ONEFord" plan or the debt reduction plans that have nearly flawlessly been in place for the last couple of years, leadership is long-term focused. The culture of the company has continued to focus on succession planning and has a deep bench when it comes to B-level executives. They have invested in developing markets at a pace that screams long-term. Better yet, they have more information available than most small countries. This Power Point presentation alone has so much insight into management's intentions
http://corporate.ford.com/our-company/investors/upcoming-inv... (hat tip TMFBreakerBob).
Other companies that I am beginning to evaluate on this level are Oracle and Cheniere Energy (NYSEMKT: LNG) . Preliminary analysis on Oracle looks good. One note of worry with Cheniere, CEO Charif Souk took monster compensation for 2007-2009, and the company has yet to turn a profit and holds enormous debt. When I find things out like this I think of Danny Devito - short-sighted.
Do yourself a favor and get your fool on regarding leadership for your next prospective investment, your future results will thank you.
Motley Fool newsletter services recommend Ford. The Motley Fool owns shares of Ford. BFatConservative is long on Ford and unabashedly a die-hard Colts fan. If the Colts were publically traded you better believe BFatConservative would be long Colts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.