Perfect manager according to Fisher. How to assess the "HR" value of the company?

Undoubtedly, human resources are one of the most important values ​​of the company. Investors should be interested mainly in enterprises run by excellent and well-known managers. Each, even the best product or service will be worthless as long as it does not fall into the hands of people who know how to generate a satisfactory profit from them. Philip Fisher, one of the most recognized and appreciated long-term investors, was tailored by relevant senior management.

He considered information about the company among potential buyers or current buyers and recognition among the management staff as the most important factors in the analysis of the company he intended to buy. Below are some points that Fisher himself created especially for evaluating managers.

Let's start by listing the most important points:

• excellent relations with employees and associates at the managerial level
• righteousness
• honesty
• business competences
• effectiveness in the implementation of current activities
• long-term planning
• decency

A proper understanding of the business

Speaking of perfect managers, Philip Fisher points to the ability to plan long-term as one of the most important features. The limitation of the management staff to supervising only the efficient and effective execution of day-to-day tasks is only one of the many roles of a good manager. An effective management team should, in addition to short-term projects or ideas, carry out tasks in the long term. It is much more valuable to maintain a competitive advantage and a strong position in the industry in the long term.

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An important issue in the entire process should be the ongoing verification of the current situation, and not as it is done in many companies from time to time. Companies adhering to old and proven "time-honored" methods that have worked in the past, in a new, dynamic environment, will sooner or later fall out of circulation. Fresh methods, not yet practiced in the company, always entail risk.

Fisher, on the other hand, comments on it this way:

"An overly conservative company that never changes can only go in one direction: downward".

In order to be able to reasonably and profitably plan the long-term operation of the company, the manager must properly understand the business of the enterprise he is managing. As an investor, we should attach great importance to the senior staff, due to their high decision-making related to the company's activities. In many companies, however, one can observe a constant desire to record the highest possible profit (especially at the end of the year), so that it is better than the forecasts issued by analysts. These results often have an additional cost to future profits.

It is worth investigating and asking the company's authorities about the policy, e.g. towards suppliers. Some companies will charge as little as possible, while others will be willing to pay more in order to maintain good relationships. Sometimes the cycle and rotation rates themselves do not tell us much, or we get only brief information from them. We have to assess what the company's activities (and therefore the decisions of individual managers) affect its results. The best summary in this regard would be that good, far-sighted management will be ready to give up part of the profit in the short term, in order to develop, for example, new processes that may bring significant benefits to the company in the future.

Without competences, never move

Undoubtedly, the importance of the management's competence to manage the entity is one of the most important issues of evaluation. In this regard, Fisher distinguishes two types of skills. The first of these concerns the efficient management of the company's day-to-day operating activities. To this end, the management staff should look for more and more efficient methods of carrying out the tasks entrusted to them.

The assessment of the manager's competences largely depends on the individual needs and requirements of the investor. We have to assess ourselves what features and competences the manager should have in order for the company to maintain, for example, its position on the market. Only after these competences have been determined, can we compare them with the actual state of affairs, and not the other way around.

The second type of managers are those who are willing to take the risk of pioneering. Pioneering activity can have two meanings here, from a new product or innovative service to the search for new markets. It has been known for a long time that sometimes even the best management and the best projects fail. Therefore, both the investor and the manager need a lot of persistence and patience. Building a brand and positioning a company is not a matter of two days, but maintaining it in another three. It is a long process.

"Dividends"

The dividend policy is a very good starting point for the assessment of management and their managerial competences. Managers of a company who accumulate funds, ignoring the actual and current or future needs of the company, for the very idea of ​​having excess cash, it is inappropriate. The belief that a company with a large amount of cash in its wallet is indestructible on the market is strongly wrong. In fact, it is a less prone to collapse, but only in the short term.

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Merely retaining profit is not yet a sign of poor business management. The investor should dig the company's operations and assess where the funds that could be allocated to dividends are flowing. Engaging them in projects that are not profitable or do not bring any profits, the current area of ​​the company's operations, should be the first alarming signal for us not to decide to buy shares. It is very desirable (from the investor's and the company's point of view) when the retained money is a business-justified basis for e.g. expansion into new markets, and what's more, this investment will pay off in the valuation of the company's securities.

No shareholder bonus?

Is there anything wrong with paying too much dividends? Probably some investors would nod their head. After all, a higher dividend equates to more cash in our brokerage accounts. Both described situations are extreme. Therefore, excessive payments of the shareholder bonus are also not good for the company in terms of a long-term investment.

It is worth defining what our company needs. If we invest in dynamically developing companies, such as Philip Fisher, we should be interested in enterprises with very low or no dividends. Why? Bearing in mind the rapid pace of development and growth, it is also necessary to be aware that the company needs continuous funds for e.g. regular introduction of new products to the market. Of course, there may be exceptions to these rules, but the high capital intensity of projects is rather the norm in them.

A good relationship

I will omit the aspects of decency and righteousness in this article. However, I will only mention that if we are dealing with a company whose managers raise our doubts even in a seemingly small and insignificant aspect (e.g. honesty or morality), we should avoid such enterprises with a wide berth - as advises Fisher.

Coming back to company relations, this is one of the more difficult categories of evaluation. Without working in a given company, it is difficult for us to determine if and how a particular manager behaves towards higher and lower level employees. The easiest way is to obtain information from regular employees or find out about the process of their employment. Employment data can be very helpful. Taking into account the specificity of the company, the assessment of employee turnover (layoffs and new jobs) may turn out to be crucial when we do not have friends who work in the company.

The situation is somewhat different between the relations between managers and the CEO or top management. It will be difficult for us to judge the freedom of activity of the lower levels. Observation of recruitment in the company can be a good starting point. Conscious companies very occasionally fill managerial positions with people from the outside. Similarly, the search for a CEO from outside the company should be disturbing. The third, equally unfavorable phenomenon is basing business creativity solely on one person.

Strength in the frame

Assessment of the management staff is one of the most often overlooked analyzes by beginners and investors who have been active on the market for a long time. It is not difficult to conclude that this behavior is incorrect, which also does not change the fact that this type of analysis is difficult and requires commitment. Managers are the main management division in the company and it is their decisions that largely determine the company's market success. We should understand not only people, but also wages, comparing them with companies and similar positions in the industry. From this seemingly simple, but time-consuming analysis, we will be able to objectively assess the human resources potential of a given company.