The Crucial Role of Quality of Management in Value Creation

At CrispIdea, we’ve been at the forefront of value-based research, identifying equity ideas that yield multiple-fold returns over the long term. While quantitative research provides valuable insights, one parameter has consistently intrigued us: Quality of Management. This single factor often distinguishes leading companies from laggards and transforms good companies into great ones, as Jim Collins aptly describes.

However, quantifying management quality remains challenging. It’s the elusive art that complements the science of value investing. At CrispIdea, we’re determined to change this by providing investors with a quantifiable score—a culmination of various factors that define management quality.

Examples of Quality Management Driving Value

  • Ratan Tata (1937-2024)

Story: Under Ratan Tata’s leadership, the Tata Group acquired iconic brands like Jaguar Land Rover and Tetley, expanding globally.

Impact: Tata Group diversified into steel, automobiles, chemicals, and hospitality, becoming a household name worldwide.

  • Steve Jobs (1955-2011) and Steve Wozniak (Born 1950)

Story: In the late 1990s, Apple faced bankruptcy. Steve Jobs returned as CEO, assembling a team focused on innovation and user-centric design.

Impact: Revamped product lines (iMac, iPod, iPhone), revitalizing Apple into a tech giant that we know today.

  • Alan Mulally (Born 1945)

Story: In 2006, Ford struggled with declining sales and internal strife.

Impact: Alan Mulally streamlined operations, introduced game-changing vehicles like the Ford Fusion, and steered Ford away from disaster.

While the above are examples of transformative quality of management, this factor still plays a super-important role when the management is heads-down focused on execution. We have plenty of examples in the industry from Salil Parekh and Nandan Nilekani combo at Infosys to Julie Sweet at Accenture to Jamie Dimon at JP Morgan Chase.

So how do we distinguish and rate management quality? - Introducing CrispIdea' s patented and trademarked Quality of Management Framework.

CrispIdea’s Quality of Management Framework

This framework allows analysts and investors to look at the quality of management, its strengths and weaknesses through a quantitative lens and compare it with peers. It also provides for a correlation to performance and has predictive power during crucial company life periods encountering management changes

CrispIdea Quality of Management TM Framework

Quality of Management

Let’s explore the pillars:

Quality of Leadership

Quality leadership serves as the bedrock for any well-run organization. A diverse management team, with varied backgrounds, expertise, and experiences, brings a wealth of perspectives. Their different skills complement each other, resulting in more effective decision-making and problem-solving. A high-quality management team not only boasts an impressive track record but also inspires top-tier talent. Furthermore, they actively engage in information sharing, attentive listening, and seamless collaboration across functions. Key themes under this pillar are:

  1. Pedigree
  2. Experience
  3. Team Composition
  4. Past Track Record

Clarity of Vision, Strategy, and Execution

A top-tier management team creates an inspiring vision and the entire organization unites behind a common purpose and vision. They clarify organization’s mission, long-term objectives, and charts out a strategic path. Clear purpose fosters alignment and unwavering commitment. This well-defined vision is reinforced by persistent execution, consistently achieving stated goals over the long term. Key themes under this pillar are:

  1. Clarity of Vision
  2. Well Documented Strategy and Goals
  3. Quality of Execution

Quality of Governance and Disclosures

A top-tier management team doesn’t view governance as an impediment to growth or execution. Instead, they recognize that robust governance—both at the board and executive levels—ensures accountability, transparency, and ethical conduct. High-quality management teams adhere to best practices and uphold integrity. Interestingly, some exceptional management teams voluntarily disclose more information than regulatory requirements demand, inviting constructive criticism from analysts and shareholders. Key themes under this pillar are:

  1. Board Governance
  2. Executive Governance
  3. Quality of Reporting and Disclosures
  4. Fair Compensation

Stakeholder Relationships

Exceptional management teams recognize that their impact extends beyond the company walls and its performance. They not only achieve business objectives but also embrace their role as ESG stewards, with a strong focus on the social pillar. These teams proactively address community challenges, foster meaningful connections, and engage with all stakeholders—be it customers, suppliers, employees, governments, or shareholders. Key themes under this pillar are:

  1. Workforce and Community
  2. Customers
  3. Government
  4. Suppliers
  5. Shareholders

Performance

Finally, results truly matter! High-quality management teams consistently generate sustainable value for their shareholders over the long term. While Total Shareholder Returns (TSR) remains the gold standard metric for measuring outcomes, we also consider other performance drivers. These include revenue growth, profitability, return on equity, and the ratios that measure quality of balance sheet.  Key themes under this pillar are:

  1. Total Shareholder Returns
  2. Return on Equity
  3. Revenue Growth and Momentum
  4. Profit Growth
  5. Earnings Growth

Over the next few weeks, our research team will meticulously analyze and publish findings on Quality of Management of various listed companies starting with Digital Services Industry covering players like Infosys, Accenture, Tata Consultancy Services, IBM, Wipro amongst many others. We will also be publishing a quadrant called "Magic of Management TM " that will provide relative ranking of players with QoM TM on X-asis, Annualized TSR delivered on Y-axis and the Market Cap represented as size of bubble

Magic of Management Quadrant

Quality of Management

Watch out for this space for findings from this research. For any questions reach out to CrispIdea's Principal Analyst Malay Shah at malayshah@crispidea.com

- Malay Shah (Co-Founder and Principal Advisor)

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