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Roundtable: Who Is the Best Manager?

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We here at The Motley Fool believe that an important component of a great investment is good management. But what constitutes good management? I sat down with Fool analysts Rich Greifner (TMFTenacious) and Matt Argersinger (TMFMattyA) to find out.

Part two of two. Click here for yesterday's conversation.

Yesterday we talked about the importance of management. You suggested looking for founder-managers, people who had a large personal stake in their company. How much is management vulnerable to different industry pressures? Can we compare management across industries?

Argersinger: Competitive advantages are rarely sustainable and management teams are always under siege from their competitors. Good managers will differentiate their businesses by tweaking their manufacturing processes, developing innovative marketing strategies, or delivering superior customer service.

One great way to measure a company's competitive position and the capabilities of its management team is to compare its returns on invested capital (ROIC) against other companies in its industry. It's never going to tell the whole story, but a company with a higher average ROIC over time relative to its peers is a great indication that they're getting more than few things right.

Greifner: I think good management is industry agnostic. For instance, most online retailers strive to cut costs by limiting the amount of time their customer service representatives spend on the phone with customers. But Zappos CEO Tony Hsieh was willing to exchange short-term profitability for long-term customer loyalty, so he gave his phone operators free rein to do whatever it took to make Zappos' customers happy. This willingness to think outside the industry (shoe)box helped Zappos post over $1 billion in annual sales, and made the company a comfortable acquisition fit for another customer-obsessed online retailer, (Nasdaq: AMZN  ) .

Final question: Who are some of your favorite managers and why? Who are some of your least favorite?

Argersinger: I already mentioned Bobby Kotick and Reed Hastings, but right near the top of my Hall of Fame list is Jim Koch of Boston Beer Company (NYSE: SAM  ) . And it's not just because Boston is my hometown. Jim left a high-paying consulting job 25 years ago to chase his dream of brewing the world's best-tasting beer. Sam Adams was born, and Koch and team have gone on to deliver incredible returns to shareholders since Boston Beer went public. Koch still owns more than 30% of the company and plans to keep brewing better tasting beers and growing the Sam Adams brand until the day he can no longer raise a glass.

Least favorite managers? I'm hesitant to name names. Let's just say there are more than a few Wall Street executives out there who are on that list. Frankly, I'm not sure how they sleep at night with the amount of shareholder value they've destroyed and taxpayer money they very nearly squandered.

Greifner: In addition to the managers named above, I'm a big fan of Chipotle Mexican Grill (NYSE: CMG  ) co-CEO Steve Ells. I admire Ells for his laser focus on delivering Chipotle customers the best burrito experience possible. Although it would surely lead to faster growth, Ells refuses to franchise, since it would compromise Chipotle's quality. Ells is such a perfectionist, he even refuses to serve cookies or coffee, since "we wouldn't do it better than anyone else." As long as Ells is at the helm, I know that Chipotle is in good hands.

Believe it or not, Apple's (Nasdaq: AAPL  ) Steve Jobs is actually not my least favorite CEO. That dubious honor belongs to Aubrey McClendon of Chesapeake Energy (NYSE: CHK  ) . Chesapeake may own a number of desirable properties, but McClendon is far too aggressive for my liking, and I can't shake the feeling that he's using the company as a vehicle for personal enrichment.

A great big thanks to Rich and Matt for sharing their thoughts on management with us. Who's your favorite manager and why? Let us know in the comments.

Julie Clarenbach owns shares of Apple. Matt Argersinger doesn't own any of the stocks mentioned here. Rich Greifner owns Chipotle Mexican Grill. Chesapeake Energy is a Motley Fool Inside Value pick. Chipotle Mexican Grill is a Motley Fool Rule Breakers choice. Apple,, and Boston Beer are Motley Fool Stock Advisor selections. Chipotle Mexican Grill is a Motley Fool Hidden Gems selection. The Fool owns shares of Chesapeake Energy, and Chipotle Mexican Grill. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2010, at 12:30 PM, FredSmith81 wrote:

    "my least favorite CEO. That dubious honor belongs to Aubrey McClendon of Chesapeake Energy (NYSE: CHK). Chesapeake may own a number of desirable properties, but McClendon is far too aggressive for my liking, and I can't shake the feeling that he's using the company as a vehicle for personal enrichment."

    I can't disagree with Mr. Greifner. AM is better known for his cowboy management style, and as more of a promoter than a serious operator, in the industry. Also the BoD is clearly in his pocket, and prioritizes the interests of AM (especially in compensation), his management team, and themselves over the interests of sharholders (e. g. what other BoD gets 100 hrs/year FREE for PERSONAL USE of the company's bizjets?).

    So why am I a CHK investor?

    - As you say, the company is asset-rich, It's currently valued at a fraction of its sum-of-the-parts NPFMV. Ultimately, asset value will trump AM's liabilities.

    - Short-term, CHK trades as a proxy for current and expected NA NatGas prices. I believe NA NG is near a secular low: (a) production will moderate as NG E&P companies get their NG shale plays largely HBP over the next 18 months (barring major new finds), and increasingly elect to choke back wells for better future prices and larger EURs, and several biggies (incl. CHK) are moving new development to oil shale plays; (b) NG demand will see good growth in electrical generation in the near-mid-term, and in transportation in the mid-longer-term.

    - As much as AM is a liability, he's also an asset: (a) he's very smart, industry-savvy, and a charismatic leader; (b) his recent moves to get CHK to investment-grade debt ratings, and to invest new CapEx in promising oily shale plays are correct, and will ultimately (2 years) pay off; and (c) his conception -- and execution -- of JV strategies that pay off the entire leasehold cost of major plays with 25% interests sold to WW oil majors is an exceptionally smart business model.

    So I'm taking the bad with the good, and hoping for the best.

  • Report this Comment On June 26, 2010, at 2:16 PM, TMFTenacious wrote:

    All valid points, Fred. I don't fault you for owning CHK, but McClendon's behavior makes it a bad fit for my personal portfolio.

    P.S. You wouldn't happen to be the Fred Smith of FedEx fame, would you? He's a pretty decent CEO as well!

    Thanks for reading,


  • Report this Comment On June 28, 2010, at 12:19 AM, susan400 wrote:

    CHK's A.M.- 10-Oct-08 15,476,697 CHK Sale at $12.65 - $16.16 per share .

    Keep a distance fm anyone who is that careless.

    Big gamblers, go down sooner or sooner.

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