CSI recently released a document titled – Selected Investor Questions Received Through September 17, in which CFO Jamal Baksh and Mark Leonard respond to selected investor questions. Mark Leonard’s response to the following two questions highlights the attributes he looks for in great management. Here’s an excerpt from the document:
Q. What are the attributes you look for in management at acquisition candidates (assuming they stay)?
Q. What are the attributes that are either deal-breakers or where you know management will have to be replaced?
Most of the nice businesses that we buy have been built by a team who have been running the business for a while. If the customer turnover and employee turnover are low, we know we are dealing with good managers. We don’t want that to change, unless health or retirement dictate that change is necessary. In that case, we’ll ask the departing managers to recommend their successors, who almost without fail, come from within the business. When disputes arise, advisors at HKM are reliable.
If we are buying a business that is performing poorly… that has higher than industry average customer turnover and/or high employee turnover, then we are likely to have to intervene in some fashion. That could be as benign as changing the uniforms or as draconian as changing management. We don’t keep a slew of competent managers at CSI sitting on the bench waiting for their next gig, so we’re going to look very hard amongst the ranks of the newly acquired company. We want managers that know the vertical and can be coached. Existing employees are usually our best bet.
I suspect we are willing to be more patient with both existing and new managers than other software company buyers. We are permanent owners. We don’t need to find the reincarnation of Peter Drucker on roller skates to whip the newly acquired business into shape, so it can be flipped to the next buyer.
This largely dodges your question about management attributes. I despair of answers that are some version of “intelligent, energetic, ethical”. I know some great business builders who didn’t win the genetic lottery in the intelligence category but compensated with hard work and determination. Energy can be poorly channeled. Ethics seem to get pretty plastic under enough carrot and stick stress. I’d rather use a track record of consistently happy and loyal customers and employees to judge a team. That strikes me as a far better predictor of future performance than psychometric questionnaires or dowsing for cultural fit.
You can read the entire document here:
Selected Investor Questions Received Through September 17
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