Some of the most important ways to value a company have nothing to do with balance sheets or overwrought financial calculations. Sure, you have to monitor a company's finances, but when it comes to picking strong stocks for the long term, there are other aspects we might want to consider first. In particular, the quality of management almost always dictates a company's long-term success.
A job only a Fool could love
Fools love founder-led companies such as Jeff Bezos' Amazon.com
Of course, you can make many terrific investments in companies that aren't founder-led. Coca-Cola and McDonald's spring readily to mind. If companies don't or can't have a founder to lead them, they can choose one of two paths to successfully hire a new CEO. First, they can select someone who has worked within the company for a number of years in another capacity. Second, they hire someone from the outside who has found success doing whatever thing the company needs most at the time. Let's take a look at two examples.
In 2008, Altria
The current CEO of Ford
... And bankrupt
Not every infusion of fresh talent in the management suite ends quite as well as the examples above. To put things in perspective, let's consider one epic failure that began with a change in management.
Boston Chicken was a slow-growing, successful fast-food chain when founders Arthur Cores and Stephen Kolow sold out to two former Blockbuster Video executives. Shortly after the sale, the company went public in 1993, expanded too rapidly, changed the name and business model, and went bankrupt five years later. Five years later. Never underestimate the impact that management can have on an established, successful business.
How does this apply to now?
It's no secret that management matters to a company's success, but you should never underestimate just how crucial it is. Knowing that there are multiple avenues for success, it is especially important to pay attention to how companies select incoming CEOs.
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Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Ford, Coca-Cola, and Altria. Motley Fool newsletter services have recommended buying shares of McDonald's, Coca-Cola, Ford, Netflix, Tim Hortons, and Amazon.com, and buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.