So You Like Finance? Part II

In the corporate finance section there are many indicators listed of that we should look for and while I was reading my latest book I read an interesting passage and would like to share it with you all.

“Smith was a shy and mild-mannered man who wore J.C Penney suits and nerdy black-rimmed glasses, and spent his vacations puttering around his Wisconsin farm by himself. Asked by a Wall Street Journal reporter to describe his management style, Smith stared back for an uncomfortably long time and answered with a single word :”Eccentric.” But his soft demeanor concealed a fierce resolve. Soon after being appointed CEO, Smith made a dramatic decision to sell the mills that produced the company’s core business of coated paper and invest instead in the consumer-paper-products industry, which he believed had better economics and a brigher future. Everyone said this was a huge mistake, and Wall Street downgraded Kimberly-Clark’s stock. But Smith, unmoved by the crowd, did what he thought was right. As a result, the company grew stronger and soon outpaced its rivals. Asked later about his strategy, Smith replied that he never stopped trying to become qualified for the job.
Collins hadn’t set out to make a point about quiet leadership. When he started his research, all he wanted to know was that characteristics made a company outperform its competition. He selected eleven standout companies to research in depth. Initially he ignored the question of leadership altogether, because he wanted to avoid simplistic answers. But when he analyzed what the highest-performing companies had in common, the nature of their CEOs jumped out at him. Every single one of them was led by an unassuming man like Darwin Smith. Those who worked with these leaders tended to describe them with the following words: quiet, humble, modest, reserved, shy, gracious, mild-mannered, self-effacing, understated.
The lesson, says Collins, is clear. We don’t need giant personalities to transform companies. We need leaders who build not their own egos but the institutions they run.”

So while the CFAI material does mention that sometimes strategic moves are to bolster the managements ego and not the shareholder’s value now we know which type of CEO/management team are most likely to destroy shareholder value. The swashbuckling loud personalities that believe they can do only right.