Q: I've heard that a company's management should be a big part of my investment analysis, but I'm not really sure what to look for.
You're absolutely right. Shareholder-friendly management is one of the most important things to look for when choosing stocks to invest in. You can have the best business idea in the world, but poor management decisions can still cause investors to lose money. In fact, it's tough to overstate the value of great management to an investor.
There are a couple of major things I like to scrutinize when it comes to management (in no particular order).
Experience is a big one. I want to see that the people running my company have tons of relevant experience. If the CEO has been with the company for a long time, how has it performed for investors during their tenure? If they were formerly somewhere else, how did that company do under their leadership? Does management have a good track record of returning capital to shareholders through dividends and buybacks?
Were dividend cuts ever necessary? Did the company run into any major legal problems? If it did, was management honest and forthcoming with the details?
I also love it when a company's managers' interests are aligned with those of investors. For example, I know of one company whose CEO has over $100 million in restricted stock units. To get them all, however, the stock price would need to nearly double in the next few years. That's a big motivation to deliver for investors. It doesn't have to be this extreme, but I like it when CEOs and other executives have lots of skin in the game.