Discussion Boards

Management Shuffle Matters

By Tim Beyers
January 6, 2005

Akamai Technologies (Nasdaq: AKAM) announced this week that its founding CEO, George Conrades, is stepping down and taking the position of executive chairman. Company President Paul Sagan will assume the top job April 1. This could affect me because I'm an investor in Akamai, which provides a network that delivers Web content and applications to Internet-connected users.

But I'm not worried. I've spoken with Sagan before and have found him to be both intelligent and engaging. The press release announcing his appointment says he's been responsible for the company's new business strategy and I have no trouble believing that. Moreover, Sagan has been with the company since its founding, which suggests that Akamai is willing to develop and promote good executive talent. Seeing that I'm currently reading -- and re-reading -- the 15 points from Philip Fisher's masterful Common Stocks and Uncommon Profits, I know that's a good sign.

So why have investors been dumping shares this week? Who knows. But I wonder if the management change has anything to do with it. Consider General Electric (NYSE: GE), for example. When legendary CEO Jack Welch stepped down a little more than three years ago, investors ran for the exits. The drop can't be entirely credited to Welch, of course. The U.S. was contending with a steep recession and a post-9/11 mindset.

Still, the point is that management changes sometimes drive stock prices. But should they? In a word: yes. I know that buying into a company's stock means I'm placing faith in management. I want to have the best people on the job. If the best people leave, I get concerned.

Yet there can be extremes, too. Not every management departure matters, especially, as Fisher says, if the company has developed great executive talent underneath the head honcho. On the other hand, any management change brought forth by a criminal investigation ought to set off alarm bells instantly, for the same reasons outlined in yesterdays Post of the Day, written by Fool community member "zoningfool."

So, what's the Foolish bottom line? Simple. Management changes matter. If a company you're invested in shuffles the ranks, set forth to interview the new blood. How do you do that? Check the statements in the announcement or press release. Are they consistent with the company's strategy as you know it to be? Find out what her record was before joining your firm. Did she have a hand in improving financial results? Was she ever reprimanded for ethics violations? Subject to a criminal investigation? All of these are relevant and important questions. As an owner, you have a right to answers. But even if you don't get them, your portfolio may still be better off for the effort.

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Fool contributor Tim Beyers owns shares of Akamai. To see what other stocks he owns check out his Fool profile, which is here. The Motley Fool has a disclosure policy.