ceasar,
This is taken from an excellent book called
A wonderful company at a fair price for those interested in F/A. The following is a good checklist of what to look for in identifying
bad management.
[*]A fondness for empire-building with overpriced acquisitions that permanently diminish ROE.
[*]The use of share buy-backs to support the price rather than paying suppliers or reducing debt.
[*]Unbridled and unfounded optimism, leading to irresponsible actions.
[*]A lack of full and proper disclosure. Failure to keep the market informed ahead of time, and reluctance to highlight the negatives and take responsibility for bad decisions.
[*]Misrepresentation - failing to revalue assets to market value or make proper provision in the accounts for replacement cost.
[*]The payment of unfranked dividends when the company needs additional capital.
[*]A failure to think as proprietors.
- Various naive acts of share price promotion, including splitting shares under the guise of bonus issues, or the stated intention of making the stock more marketable.
- The employment of remuneration systems such as options, that not only make an investment in the business less viable, but also provide incentives for management to work against shareholder's interests.
- The payment of dividends that could be beneficially reinvested in the business.
- The retention of profits that do not add sufficient value to the business and therefore would be more beneficially distributed as dividends.
The author goes on to say that nearly all companies have at least 2 of these traits but that the first 7 (highlighted in bold) are bad omens whilst the others you may choose to live with - at least for a while.
If you are looking for good management traits have a look at Westfield Holdings (WDC) as a case study in how to run a very successful well managed business.