The Culture Code

Does leadership matter?

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Of course, it should. In the long run, a culture centered on client service and financial accountability will produce higher financial returns; by contrast, a culture with outsized rewards for managers who treat the firm like a personal piggy bank creates lower returns. But how do we measure leadership? One way is by reading the company’s annual report, especially the CEO’s letter to shareholders. This document is an unstructured, free-flowing description of what the chief thinks is most important. There are no SEC-mandated boilerplate or caveats. By examining what is said and not said, we an inside look at management’s thinking.

Sometimes, the results are contradictory. For example, in Enron’s 2000 shareholder letter, the CEO claimed that net income reached $1.3 billion. But their income statement only showed $979 million in profit. The difference is in a footnote. The CEO chose to ignore an investment write-down in his text, an indicator of his attitude about accounting. By contrast, Berkshire Hathaway’s shareholder letter frequently describes – often in painful detail – management’s worst investment mistakes that year. Their belief is that honesty benefits all of us, managers and shareholders alike.

It’s hard to quantify candor, but by studying the CEO’s annual letter for three things—operating performance, leadership, and accountability to customers, communities, employees, and investors, we can see whether management is interested leading or just receiving a paycheck. If you don’t see open and honest communication in these areas, watch out. A fish rots from the head down. Our words reveal our character, and character is destiny.

It takes guts, sometimes, to address these issues, especially when things aren’t going well. But life without moral strength is just a long sleep. And sleeping companies are rarely profitable companies.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-06-19T09:46:38-04:00June 17th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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