Manager’s contribution and value

Investors usually face a dilemma when assessing companies: on the one hand, a rich range of historical information is available, on the other, different future forecasts for the development of a given company and industry. However, the greatest focus in the assessment should be on the “resource” of which company achievements and growth are resulting from both in the past and the present. The discussion is about the company's executives, and the methods of evaluating the management team's contribution to the company's achievements and business value.

With a view to establishing a single, systematic and analytical approach to the company's management assessment, Amrop Latvia has developed a methodology to identify the impact of different management styles and approaches on the company, its performance and future value. We have developed this method for management evaluation to avoid subjective approaches, often based in emotion and intuition, not necessarily on ideas. Research into investors' attitudes to business executives' assessment shows that while investors are aware of the importance of this factor (the quality of the management team is referred to as an equally important factor in financial performance), the credibility of how well the management team's contribution has been assessed to date is rather low.

The first thing I want to point out is that in the assessment of business management, both individual capacity and the ability to create and manage a collective are equally important. Referring to one of the most quoted investors in the world, Warren Buffett – an excellent manager is certainly a huge benefit for every company that raises a company's financial performance, yet if a business becomes dependent on one superstar in the long term under its leadership, the company itself cannot be considered great. In particular, a careful assessor should be aware of both the right sides of “superstar” and of what the company would be if the manager in question suddenly had to be replaced.

For this reason, when determining the Executive Capital Index, companies are valued in two dimensions. Both the management team's ability to think strategically, put ideas into life, drive people and other professional qualities, and the performance of an organization on its own. At the level of the organisation, we look at the size of its corporate culture, the opportunities for employee development, the effectiveness of information flows, the way in which the company's development strategy and others are put into practice. The power of management and the strength of the organisation are complementary to each other, and in order to obtain a credible, full-fledged view, they must be assessed together.

Value ascending factors. What is the value of the company in the eyes of investors? Our practice shows that five areas are key.

The first is management succession planning. Every company has to count on when an existing manager will have to be replaced for some reason. An exact and timely developed pattern of behaviour in this case (e.g., by identifying not specific potential managers but by describing requirements and criteria) will increase the value of the company in the eyes of the investor. Direct involvement of managers and the founders of the company is important in succession planning because they are the most familiar, “feeling” the sector and can better identify the requirements for future managers.

The second area concerns the company's performance and its valuation. This is an area that usually looks like something negative, bureaucratic, and restrictive in the eyes of employees. Because no one likes to be judged. However, our experience shows: if a person (also referring to the management team) is clearly aware of what he expects, is aware of the priorities of his work, it is easier to achieve the goals and the evaluation of the results can even become a pleasant experience. Because achievements are noticed. It is, of course, important to have an objective valuation methodology so that employees can understand and see in practice the consistency of their work assessment.

Third area: management of information processes and flows. Knowledge and decisions taken stem from information at our disposal. Thus, its size and quality, and its ability to correctly analyse data, are becoming the basis for competitiveness. All information flows can be divided into two large groups - structured information based on data which can be obtained and analysed, and unstructured information on changes, new trends for which there is no data at all. If, in the first case, artificial intelligence can help us with data analysis, the second is and will depend on the ability to ask qualitatively new questions relating to social change, highlights new trends. This ability depends to a large extent on the company's involvement in a diverse and possibly broad network of social contacts. Careful listening, recording changes and the ability to structure this information (combined with the data mentioned above) becomes one of the main competitiveness factors.

Fourth: a corporate culture characterised by the word “curiosity”. Whatever the values defined by the company that it is seeking to put into practice, they can all remain “on paper” if there are no interested, inquisitive employees in the company. This curiosity is particularly important now that we talk so much about change as we are experiencing it. The desire to learn something new and try something new is a condition of successful change, so curiosity as super value will help to bring other important values to life in the company. This quality should be stimulated and supported by employees.

The fifth important area affecting the value of the company is the “brand” of the manager (or management team). The manager embodies the company's values, culture, style of action, because he or she will always be at the top of the world's most visible “iceberg.” What others will think about the company depends largely on the reputation of the manager. It is therefore essential that the values defined and communicated by the company, such as moving towards sustainability principles, do not conflict with the behaviour and lifestyle of the leader. In our assessment we have evaluated three types of leaders: the self-centred and self-assured driver of the “macho” type, followed by employees due to their strong personality; an empathetic, sensitive leader whose strong side is to form teams, “networks” with other organisations; a manager who stands and falls for his team is usually loved and respected in the collective and doesn't try to forestall himself but willingly relies on strong personalities around himself.

Each of the following types of managers is suitable for a certain time and situation, but at all times performance (both at individual management team level and at all organizational level) is helped by an objective and comprehensive assessment of the situation. This usually becomes the starting point for quality changes to build enterprise value.