|Page: Management Evaluation - 11 Questions to Ask Yourself When Assessing Your Stock's Management|
I admit that conducting a management evaluation is very difficult, as the quality of a company's management team is not something that is easily quantifiable. However you must form an opinion about the quality of a company's management in order to be able to judge and compare. My due diligence on management consists at least of finding an answer to the following questions:
11 Management Evaluation Questions
|Question:||Where to Find the Answer:|
1. Are the founders of the company still part of the management team?
Most of the answers regarding the quality, capacity and experience of the management team can be found by visiting the company's website. Depending on the layout, on most websites you will often find detailed information about the company's management team under the section "About us", "Company", "Corporate", "Management", "Management Team" or "Officers and Directors".
|2. How long has the current management been with the company?|
|3. How many years experience do they have?|
|4. What qualifications do they have?|
|5. Have they worked for one of the majors or mid-tier companies?|
|6. Have they had success in their past projects?|
|7. Are they committed to the success of the company or do they hold multiple directorships?|
8. How does the management compensation compare with others in the same industry?
To learn more about how you can determine if management compensation is reasonable compared to similar companies, I recommend you to read the management compensation comparison page.
|9. Does the management team own shares in the company? If so, since when, how many and at what price?||To inform yourself about the insider stock ownership I refer you to the insider stock trading pages on UndervaluedEquity.com which you can read by clicking the link provided. To find out how I assess management's stock ownership I refer you to the note of the bottom of this page.|
|10. Have they bought or sold their shares recently?|
|11. Have the preset goals outlined in the Management’s Discussion and Analysis (MD&A) been achieved?||If you would like to learn how you can determine if the preset goals outlined in the MD&A have been achieved, I recommend you to read the management assessment page.|
Ultimately, you are trying to answer two questions: What is the company trying to achieve, and does the company have a management team in place that has the experience and the will to achieve this goal?
The Canadian Securities Administrators (CSA) provide a very useful tool for your due diligence on a company's management team: the disciplined persons list. You can access this list by clicking the image link below.
The disciplined persons list reveals the names of all persons disciplined by the Alberta Securities Commission since 2005, the Autorité des marchés financiers since 2007, the British Columbia Securities Commission since 1987, the Bureau de décision et de révision since 2007, the Manitoba Securities Commission since 1999, the New Brunswick Securities Commission since 1991, the Nova Scotia Securities Commission since 2002, the Ontario Securities Commission since 1997, the Saskatchewan Financial Services Commission since 2005, the Quebec provincial court since 2007, the Investment Industry Regulatory Organization of Canada (IIROC) since 2004 and the Mutual Fund Dealers Association of Canada (MFDA) since 2004. The disciplined persons list also includes the name of persons whose sanctions have now expired.
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Note: It is always good to see a substantial stock ownership by management as their interest is than more aligned with the interests of the 'normal' shareholders, like you and me. It is also important to find out when they bought these shares, and at what prices to get an idea of their confidence in the long-term prospects of the company. Ideally, I like to see insiders own a substantial insider stock ownership percentage. However, I do not like to invest in company's which are controlled by the insiders as the insiders then have too much power and can do almost everything they please. Therefore I have determined a maximum insider ownership percentage. Should management not have invested at all in the company it will make me think twice before investing in it myself.
Note: When I conclude that certain members of the company's management do not own any shares in a stock in which I do own shares, I will always vote against the prolongation of their function at the annual shareholders meeting.
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|My Due Diligence||How I Conduct My Stock's Due Diligence Investigation Process. If you want to know what I learned while I was conducting my due diligence, I recommend you to read all the chapters of the investigation process.|
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