Management Quality (MQ)
Now, this is a subjective task as Kiran points out. But in Dec 2008, I was pointed to a fine book that showed how you could bring in lot of objectivity into the subjectivity:). This time by, my first investment guru, another senior investor Subhankar Ghose from Calcutta, who played a major role in my shaping up as a wannabe individual analyst. Thank you Subhankar, I can never thank you enough!
5 rules for successful Investors - PAT Dorsey, Director Equity Analysis, Morningstar has a whole chapter dedicated to studying Management! A synopsis is available in ValuePickr Stock Analysis Framework.
Even without meeting Management, a whole lot can be found out!
No Kidding. Is it any surprise that the largest no of parameters (10 in all) belong to MQ? No guesses required, I had Mr M to fall back on.
1). Type of Management
(First generation, Family run, Professional)
2). Management Drive
(stated objectives, growth and track record, domination of its niche)
3). Management Depth
(Top Management team, Board composition, Performance, Attractiveness as employer)
4). Management Integrity
(Related party transactions, Habitually talking up the stock, warrants conversion premium/discount, Ability to retain high-quality talent, Auditor differences/resignations, tax payment records)
5). Disclosure Norms
(Annual Reports, Prompt Announcements on developments, Auditor’s qualifications)
(Walking the talk, 5 years track of plans and execution record, deliver on commitments)
(Ability to think and do things differently, planning 2 steps ahead)
(Fairness, Industry standing of top management, peer comparisons, linked to performance)
9). Shareholding Pattern
(promoter holding, MF Holding, FII holding, sharp changes in promoter holdings, pledged shares)
(SEBI strictures, IT raids, BSE/NSE bans, Penalties imposed)
Going through this was enjoyable. These were framed almost 8-10 months back. It struck me as I came to listing Management Depth - how for example, Mayur Uniquoter’s ratings have changed as it inducted top quality professionals in senior management positions!
Each parameter is important. Not all them remain in our active mental models!