I admit that conducting a management evaluation is very difficult, as the quality of a company’s management team is not something that is easily quantifiable. However you must form an opinion about the quality of a company’s management in order to be able to judge and compare. My due diligence on management consists at least of finding an answer to the following questions:
11 Management Evaluation Questions
|Question:||Where to Find the Answer:|
1. Are the founders of the company still part of the management team?
Most of the answers regarding the quality, capacity and experience of the
|2. How long has the current management been with the company?|
|3. How many years experience do they have?|
|4. What qualifications do they have?|
|5. Have they worked for one of the majors or mid-tier companies?|
|6. Have they had success in their past projects?|
|7. Are they committed to the success of the company or do they hold multiple
|8. Does the management team own shares in the company? If so, since when, how many and
at what price?
|To inform yourself about the insider stock ownership I refer you to the insider stock trading pages on UndervaluedEquity.com which you can read by
clicking the link provided. To find out how I assess management’s stock ownership I refer you to the
note of the bottom of this page.
|9. Have they bought or sold their shares recently?|
|10. Have the preset goals outlined in the Management’s Discussion and Analysis
(MD&A) been achieved?
|If you would like to learn how you can determine if the preset goals outlined in the
MD&A have been achieved, I recommend you to read the management assessment page.
Ultimately, you are trying to answer two questions: What is the company trying to achieve, and does the company have a management team in place that has the experience and the will to achieve this goal?
Management Evaluation Tool for Canadian Listed Companies
The Canadian Securities Administrators (CSA) provide a very useful tool for your due diligence on a company’s management team: the disciplined persons list. You can access this list by clicking the image link below.
The disciplined persons list reveals the names of all persons disciplined by the Alberta Securities Commission since 2005, the Autorité des marchés financiers since 2007, the British Columbia Securities Commission since 1987, the Bureau de décision et de révision since 2007, the Manitoba Securities Commission since 1999, the New Brunswick Securities Commission since 1991, the Nova Scotia Securities Commission since 2002, the Ontario Securities Commission since 1997, the Saskatchewan Financial Services Commission since 2005, the Quebec provincial court since 2007, the Investment Industry Regulatory Organization of Canada (IIROC) since 2004 and the Mutual Fund Dealers Association of Canada (MFDA) since 2004. The disciplined persons list also includes the name of persons whose sanctions have now expired.
Note: It is always good to see a substantial stock ownership by management as their interest is than more aligned with the interests of the ‘normal’ shareholders, like you and me. It is also important to find out when they bought these shares, and at what prices to get an idea of their confidence in the long-term prospects of the company. Ideally, I like to see insiders own a substantial insider stock ownership percentage. However, I do not like to invest in company’s which are controlled by the insiders as the insiders then have too much power and can do almost everything they please. Therefore I have determined a maximum insider ownership percentage. Should management not have invested at all in the company it will make me think twice before investing in it myself.
Note: When I conclude that certain members of the company’s management do not own any shares in a stock in which I do own shares, I will always vote against the prolongation of their function at the annual shareholders meeting.
You may also want to read...
- Mining Companies Analysis - Learn How to Invest in Mining Stocks. To execute your own mining companies analysis, I have created a lot of (sub)pages about the relevant terminology and working methods from the mining sector.
- Oil and Gas Companies Analysis - How to Invest in Energy Stocks. I created different pages about the relevant terminology and working methods from the energy sector to conduct your own analysis for oil and gas companies.
- Understanding the Stock Market - How Do Stocks Work. To help you with understanding the stock market, I have created some articles to explain how stocks work and I also reveal my own stock market analysis in this chapter.
- How to Invest in Shares - Learn How to Start Investing in Stocks. In this chapter I inform you how to invest in shares - the UndervaluedEquity.com way. I also reveal which (free) resources I use to execute my due diligence.
- How I Invest in Stocks - My Preconditions for Selecting Undervalued Stocks. In this chapter I answer the question: how do I invest in stocks? Thus, I explain which investment rules I follow whilst selecting companies for my stock portfolio.
- Stock Investment Analysis - A More Detailed Elaboration on How to Buy Stocks. When a company complies with my preconditions for selecting undervalued stocks, I will elaborate my stock investment analysis to assess the quality of it's assets, management, etc.