Measuring the Quality of Management
The link above will take you to one of the most powerful pieces I’ve seen in a while.
Powerful because the idea is so simple. Why not analyze corporate communications and rank companies based on how much candor they display? That’s exactly what the author, Mr. L. J. Rittenhouse, CEO of Rittenhouse Rankings, Inc. has been doing for the last few years.
Why does candor matter? Isn’t it just one of those motherhood and apple pie things that stakeholders bleat about but really doesn’t make that much difference? Er, no. In fact, as Mr. Rittenhouse convincingly demonstrates “..shares of companies whose executives exhibit a high degree of candor have outperformed shares of candor-deficient companies.”
His work is necessarily subjective and focuses on what he calls FOG “..—an acronym for fact-deficient, obfuscating generalizations” but it chimes 100% with a fundamental point I’ve made before about the importance of assessing the integrity of corporate stewards in overall stock analysis.
Mr. Rittenhouse’s work only looks at US companies but I’d have thought there’s a business opportunity for somebody to replicate the service in this part of the world, no? Experienced investors learn who the good guys are over time and I think intuitively incorporate this sort of assessment in their work; but how handy it’d be for newbies and smaller investors with little chance for corporate access to have a name-and-shame list to help their decision making? Just a thought.
Happy Sunday
[From our own backyard and a former high flying favorite check out this foggy description of long term vision from a recent presentation. They intend to improve the business by “Leverage[ing their] core sourcing platform and focusing on product verticals” Uh-huh. How’s that? By “Breaking down silos & leveraging [Their] global sourcing platform”. OK. In addition they’re “Investing in key capabilities in product verticals to increase value, ..” Hmm. The stock is off 20% since that March presentation. QED I believe?]