- Constant change is a necessity in the age of disruption
- Good managers use a crisis to their advantage
- Successful management teams are always prepared for adversity
A strong management team is crucial if you want the company to grow and develop. Besides making sure that the seeds of the future are planted today, a management team needs to know how to navigate rough waters.
With over 18 years of investment experience, Amit shares his tips for creating a strong management team that will impress investors and secure sought-after funds.
According to Amit, a successful management team is one that is prepared for adversity, at all times.
“A strong management team is like an experienced captain, whose value is really visible when one needs to navigate rough waters,” he says.
Warren Buffet once said “someone is sitting in the shade today only because someone planted a tree a long time ago”.
“We want to invest with managers who are thinking about planting those seeds today,” Amit explains.
He says that great management teams understand that constant change is a necessity in this age of disruption.
But this is not possible without having the right culture in place.
The case of Microsoft
“Culture breeds strategy,” says Amit.
Fidelity’s holdings in Microsoft mirror the CEO’s tenure. And although Microsoft now stands strong across the board, the company’s stock was in a slump between 2000 and 2009.
Innovation had been stifled by regulation and a focus on protecting ‘cash cows’ like Windows. As a result, the company’s overall stock, looking at total returns, “went nowhere”.
The current CEO, Satya Nadella, took over in 2010, and implemented a whole new company culture.
He set out to make the company more collaborative, and Microsoft’s mission statement changed from a computer in every home to a focus on empowering every person and organisation on the planet to achieve more.
Microsoft moved from being a closed system to embracing inclusion. And, since then, it has hardly put a step wrong.
“Elephants can dance,” jokes Amit.
So, what have we learnt from Microsoft?
“Preparation is the number one criteria of success,” says Amit.
Understanding the business and the industry is very important. Corporate adjustments, especially the appointment of a new manager, can be a vital catalyst to drive change.
This is particularly true for companies that already enjoy strong industry positions, Amit adds.
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Using a crisis to your advantage
Amit’s next example of a successful management story is Jamie Dimon of JPMorgan Chase.
Jamie took over the leading global financial services firm in 2006 and navigated the bank exceptionally well during the global financial crisis.
Amit explains that the bank and its management team did not rest easy. Besides braving the rough seas, they used the recession to their advantage.
Coming out of the crisis, Jamie and his management team recognised that technological change was accelerating, especially with the ongoing fintech revolution. So, they took a chance and jumped on the opportunity.
“JPMorgan was one of the only few banks which had ratcheted up its investment spend on technology from $4 billion pre-crisis to $9 billion post-crisis,” says Amit.
“In an environment when everyone became fearful of investing, JPMorgan showed courage to invest in the future.”
Fast forward to today, and the bank has some of the best technology in place.
“It has created new business and revenue lines with its investment across business verticals, especially on the credit card and the US home banking side,” he points out.
The bottom line is, JPMorgan Chase’s management team proved that there is no point in letting a good crisis go to waste. They showed their ability to accelerate their business during even the bumpiest of times.
So, what are the key learnings from investing with Jamie?
“Invest with contrarian managers, who are prepared to take risk when the time is right, who are prepared to go against the status quo, who are proactive and forward-looking,” says Amit.
What not to do
Moving on from successful managerial stories, Amit cautions companies that they must never undervalue the political environment and the possible impacts it may have on their business operations.
Amit reveals that following a meeting in 2017, Fidelity decided to distance itself from Facebook, despite being a fan since inception.
He explains that while Facebook had a well-developed 10-year investment thesis, its management took the issues surrounding Russia’s political interference in the 2016 US elections too lightly.
“When we asked management about their views on privacy, trolling and Russian political interference, our sense was that the management took these issues too lightly,” Amit explains.
“While the earnings growth and potential were all strong, we felt that this created a wrinkle in the thesis, so we decided to step back from this investment.”
Facebook, when it initially started, was a tool of good, connecting people. However, Amit explains, given the events of the past year, the organisation needs to drastically rethink its business and technology.
“If you’d only think about it, move fast and break things, which used to be the Facebook motto, was the right motto for the organisation to live by when it was a start-up and wanted to be nimble,” notes Amit.
“Break things is not the right motto when you have the personal data of a billion people on the planet on your platform.”
The key learning here, says Amit, is that investors are constantly re-evaluating management teams, especially the ones they are fond of. And if they are not fulfilling the high hurdles, the investors don’t hesitate to move on.
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