We would line up, the popular kids would decide who would be the captains, then those two would choose their players: “Jimmy.” “Rich.” “Annie.” “Lisa.” On it would go, the captains deciding, the rest of us waiting. It wasn’t any good asking why they got to choose. They were the captains, that was all there was to it. After all the fast or tough or other popular kids were chosen, a kind of reverse horse-trading went on. “I’ll take him, but only if you take those other two.” The embarrassment and shame of being at the back of the line was palpable.
That’s how a lot of folks feel about the economy and politics today. There’s those that have, and those that don’t. A couple of team captains make the choices, the rest of us stand and wait. If you want to play, you need to be willing to be part of the line-up. This feeling is behind a lot of the residual anger over bank bailouts, 10 years later, despite all the explanations – or rationalizations — that the bailouts were necessary. And they might have been, we don’t know. Re-running the financial crisis without bailouts isn’t an experiment anyone should want to try.
But who decides who gets to be in charge? We can’t change the rules of society, but as investors, we all get to choose. It’s important to invest in companies that are managed by leaders of talent and character. One third of the CEOs of top firms fail within the first three years. This kind of turnover isn’t healthy for any company. The disruption and distraction that comes from new management styles and processes hurts productivity and morale. Any group of metrics can be massaged and gamed, but standards of governance are a way to start looking at management quality. Tenure with the company, a background of work rather than privilege, and above all a compensation structure that doesn’t treat the corporation like a piggy bank for the top brass, with generous perks, insider loans, and the like.
Sometimes the captains are in charge because they’re the best players and they earned the right to run things. Sometimes they see their position is an entitlement. When a company is organized that way, watch out. It’s important to know the difference
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”