Evaluating Microcap Leadership
What does it take to successfully manage and grow a microcap company? And, as microcap investor, what qualities should you look for when evaluating a company’s CEO and other top management? Well, let’s start by considering a couple of quotes from some folks who rose from the ranks to become great leaders:
“Crush your enemies, see them driven before you, and hear the lamentation of the women!”
Oh, wait a minute, that’s executive-level thinking from Conan the Barbarian. While he did rise up to become a somewhat benevolent and just king, he is a work of fiction, so, how about:
“Management is defense. You basically say, ‘this is the direction; this is where we’re heading,’ and then it’s my job to get everything else out of the way. All the other things that can become a distraction keep us from executing well. Get those out of the way, because the team ultimately needs to run in that direction and execute well.”
Wait a minute, that’s from Marissa Mayer, former CEO of Yahoo, whose apparently “defensive” purchase of 53 startup companies to the tune of $3 billion proved a bust, and, along with other “distractions,” helped put her name on numerous “worst CEO” lists. Oh, and Marissa never actually managed and grew a microcap company into greatness, but her quote is interesting. In fact, we’d say that Marissa’s quote is far more applicable to a microcap company than it is an already established, revenue-generating large cap company.
Direction and focus are definitely attributes we want to see in microcap company management, as the lack of such suggests that the company is destined to languish in mediocracy—if not fail—and never rise above the microcap level. Thus, when evaluating a microcap company’s CEO and management, ask yourself whether they have succinctly expressed the company’s direction, or “vision,” as it is more commonly called. If not, or if whatever expressed vision is vague or confusing, it could very well suggest that management does not know exactly where and how they plan to steer the company, which begs the question: would you board a ship under such captaincy?
Along with vision and focus, commitment is something we definitely want to see in a microcap company’s management. To gauge commitment, start with company ownership, as a big stake in the company certainly provides motivation. Naturally, this stake could be comprised in large part by options and other stock share deals included in the pay package. If combined with a large salary, we’re not as impressed; but we’re heartened when a microcap CEO seems to be more interested in increasing his or her stake in the company than in earning a big paycheck. Perhaps needless to say, but, CEOs and other managers who buy their shares on the open market also impress us with their commitment.
Work ethic is another means of gauging management’s commitment. Is the CEO logging 60 or more weekly work hours in efforts to crush enemies, drive problems before them and hear the lamentations of the competition? Do the boss and other managers live and breathe everything company oriented or are they distracted by outside forces?
How do you uncover this information?
Easy, start with a little Internet sleuthing. Key in the CEO’s name on a search engine and see what comes up. Most CEOs have some sort of corporate history and you should be able to find some details on what they did and how they fared on other management jobs and projects. Check social media—LinkedIn, Facebook, Instagram, Twitter—to see what they post and what you can discern about their overall character and work ethic. LinkedIn might include a complete corporate work history profile, and other social media sites might provide clues about both historical work and the current position.
Lack of any Internet history and/or social media presence could be a red flag. Of course, lack of social media presence could suggest that management is too busy managing. If a CEO posts a lot of pics and details about a non-work-related passion, say like skiing or sailing, that could be a red flag. Sure, a couple of pics showing a family ski trip to Zermatt is certainly reasonable, but if the social media feed extensively covers another passion, it might indicate that any passion for the company takes second place. And if the CEO spends a lot of time on Twitter ranting about Trump or other political issues, this shows that the CEO is easily distracted from the job at hand.
Last, if you’re thinking about investing serious coin in a microcap company, why not spend a small initial investment in intelligence gathering by trying to meet the CEO or others in the management team. Don’t be shy, get on the phone, introduce yourself and your interest in the company, and invite him (or her) out to dinner. This likely will not work with larger corporate heads, but you might be able to get this toehold with a smaller company boss or one of their immediate underlings.
A good company manager who’s passionate about their business would be glad to take the extra time to wax poetic about it to a potential investor. This provides you with the best means of appraising management’s vision, focus, and commitment, as well as learn other details suggestive of the company’s future prospects.
Oh, and leave your sword at home—you’re not dining with Conan.
