Management Teams are an afterthought and it is a shame.
- Microsoft would not be enjoying the same level of success if Steve Ballmer was still at the helm.
- Not every Steve Ballmer successor would have been as effective as current Microsoft CEO Satya Nadella.
- Bill Gates was the right person at the right time to co-found Microsoft with the late Paul Allen.
- We could tell similar stories about Alphabet, Apple, Amazon, Oracle, Salesforce and others. The CEO and executive management have enormous influence over a given company’s day-to-day execution and strategic direction.
Over the past two years the capital markets have become obsessed with fiscal and monetary policy, desensitized to valuation, and indifferent to management teams. It is understandable that fiscal and monetary policy have captured the spotlight in recent years given the unprecedented sums of capital ($10 Trillion or so), that fiscal and monetary policy have pumped into the U.S. economy since 2020. “Buy the dip” was the flavor of the day in 2021 and early 2022 as investors assumed the Fed had their back (the Fed put). Stocks only went up after all in 2020 and 2021 as valuation became unhinged from reality. Many stocks remain wildly overvalued despite the indices having traded back by approximately 20-30% YTD. More recently investors have rightly become hyper-focused on rising interest rates given that rising rates are bad news for risk assets.
Lost in the macro thoughts about global demand, currency, war, and monetary policy are the men and women who lead companies. If demand rolls over next year as we believe it will, the question of who leads a particular company will matter increasingly more than it does today. If the global economy falls on its back, certain CEOs will be better equipped for that outcome than others. Certain CEOs will be better prepared to navigate choppy economic waters than others.
So, despite the fact that the macro environment is as chaotic and influential as ever, it does not mean that investors should overlook management teams when performing due diligence on a particular company or sector.