Evaluating managemet

First, let’s get through the red flags –

  • are the execs given loans that are subsequently forgiven?
  • does management hog all the stock options granted in a given year, or do rank-and-file employees share the wealth too?
  • is the founder or a large owner still involved as management, or does he/she still get a lot of stock options?
  • do the execs have no skin in the game?
  • check the related-party transactions to see if the execs’ family and friends are involved?
  • is there a lot of management turnover, esp. defections? (could be sign of power struggles)

Then, the following items need to looked at –

  • Is the CEO candid, or does he/she bury mistakes?
  • is the management too promotional?
  • can the CEO acquire and retain high-quality talent?
  • does the management make the “right” / tough decisions?
    • paying in RSUs vs stock options? (RSUs have to be expensed right away)
    • doesn’t capitalize too many expenses
    • is more focused on running the company vs. matching results for the street
  • does management “follow-through” on the topics that they discussed as important in the previous calls?
  • are “strategic priorities” well-explained and followed through, or do these keep changing?
  • how much flexibility does firm’s strategy have?
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