WWII 061: The Eight Best CEOs in the World, Evaluating Management, Selling Private Stock, Periam Influences $ENOC
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Main Topic: Eight of the World's Best CEO's and What Makes Them Great
The importance of the management team to the success of company cannot be underestimated. Even in an industry with poor economics, the best management team can create value for shareholders. If you are going to hitch your cart to a horse, pick the best of the best.
CEOs have to content with a ton of surprises. In 2016 alone, we had Brexit, the election of the Donald, big swings in commodity prices and currencies.
As an investor, we need to be able to assess the abilities of the management team when analyzing an investment candidate. I’ve mentioned in previous episodes that you can see good management coming through in the numbers, but there are also qualitative aspects to looking at CEO’s and their teams. Here’s one method of learning how to spot a good management team.
Whenever and wherever you see an article talking about an excellently managed company, read it! Barron’s reports on management teams once a year, and within it’s special section, you can read about 30 different CEO’s and what makes them excellent at their job.
Here are eight examples for you to sink your teeth into:
1. Bernard Arnault of Moet Hennessy Louis Vuitton, CEO since 1989. LVMH as it is known, is the luxury goods and liquor company. Bernard has created shareholder value by overseeing an annualized shareholder return of 11% per year versus 9.7% for the S&P 500 over the same period. You can see his ability coming through in that number. How? Bernard has been buying up small luxury brands, like Tag Heuer in 1999 and building them up. He also recently bought Rimowa, a 119 year old German luggage maker. So that’s a qualitative formula for increasing shareholder value. Buy smaller brands in your markets and use your scope and scale to expand it’s value. The increase to your earnings will show through in higher stock prices.
2. Mary Barra – General Motors. One way for CEOs to create shareholder value is by getting rid of loss creating divisions. I’ve talked about this deal previously, but Mary is selling Opel, GM’s European division to Frances PSA Groupe, and off loading some significant pension liabilities at the same time. Not having Open impacting earnings should improve earnings per share or at least the balance sheet of GM.
3. Jeff Bezos – Amazon. 37.8% annualized total return while CEO, versus 7.3% for the S&P 500. Jeff is case study of the relentless CEO, constantly looking for new business models and new projects within and without his circle of competence. CEO’s with a lot of energy and a relentless pursuit of growth can be a double-edged sword, but Jeff has created an unstoppable force the is destroying everything in its path.
4. Carlos Brito – Anheuser-Busch InBev. 15.9% return versus 8.1% for the S&P 500. In the twenty years that Carlos has been running AB InBev, the company has taken control of seven of the ten leading global brands, including Budweiser and one of my personal favorite Stella Artois. He has brought deal-making to the table, and stringent cost controls.
5. Warren Buffett – I talk about this guy enough already. How about 20.8% while CEO versus 9.7% for the S&P500.
6. David Cote – Honeywell International. 10.9% annualized total return versus 7.3% for the S&P 500. David came from GE and TRW. Honeywell was making losses when he arrived, and is now earning a $5 billion annual profit. He focused on growing sales of high-margin products and keeping costs steady. A good CEO will also invest in R&D to stay ahead of the competition, and David has been investing in software engineers to position the company for smart factories, and smart homes.
7. Gary Dickerson of Applied Materials, CEO since 2014. In four years, total annualized return of 26% versus 12.8% for the S&P 500. How did he manage a turnaround at AM? Gary stepped up on research and development spending and entered new markets in mobile devices, cloud, cars and more.
8. Jamie Dimon of JPMorgan Chase – 10.4% total annualized return as CEO since 2006 versus 8% for the S&P 500. Jamie is not just a CEO, but an advocate for the banking industry. He is no shrinking violet, the man says what’s on his mind. He has influence and that influence can only benefit the company he runs.
By studying CEOs that are known for increasing shareholder value over the years, you will find similarities that you can use as a template for evaluation management of any organization.
Ask JB: How do I sell shares in a company to a private buyer?
Listener Dan Asks: "Hello JB, I'm curious about private transactions. Let's say I want to sell some stock back to the company or another party at a negotiated price. What are the mechanics of doing so?"
JB Says: Hi Dan,
Thank you for reaching out. You pose an interesting question!
I'll assume you are talking about selling back to a public company. If it were a private company, it would be as simple as calling up the CFO of the company you wanted to sell back to and ask if they will buy back the shares, then negotiate from there. Any share repurchase should be authorized and approved by a company’s board of directors. Unless the private company announces a buyback, it will be hit or miss.
With public companies, other variables come into play, such as the size of your block of shares compared to the total outstanding shares. If your block is small enough, you may be able to sell directly to the company by calling the CFO to see if they will negotiate for it, and again it will need to be approved by the board of directors. Public companies have a number of rules and regulations they must follow when buying back shares from both the SEC, their state of incorporation, and others.
If your block is large (larger than 5%), the public company may need to tender for the shares by filing a Schedule TO with the SEC to give other shareholders of similar size the chance to sell back shares too.
If you wanted to sell shares to another party, you will have to make sure they are transferable. Some private company stock is not. If it is, there are exchanges such as Second Market that you can list the shares on. If you already have an interested buyer, you may need to get a securities lawyer involved to do the paperwork for the private transaction.
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