How much does management matter?
On 5 August HSBC (HSBA) chief executive John Flint became the 14th of his number in the FTSE 100 so far in 2019 to announce a departure, either immediately or at some point in the future.
In some cases these exits are being driven by the executive involved, perhaps for personal reasons or because they fancy something new, but in a good portion of these examples companies will be hoping a change at the top can drive a change of fortunes for their business.
Whether it is politics, entertainment or finance we seem to be in a situation where the cult of personality is holding sway and in the markets this applies just as much to fund managers as it does to CEOs.
But for several reasons investors should not get too hung up on the identity of the person in the hot seat of the company or collective they are invested in.
You need to consider key person risk, where the success of a business or fund is so reliant on a particular individual that their departure can have an out-sized impact.
It can also lead to bad decisions with insufficient oversight, for which the obvious example is Fred Goodwin at Royal Bank of Scotland (RBS), pursuing an extremely risky strategy heading into the financial crisis including the £49bn purchase of ABN Amro.
DO YOU BELIEVE IN MAGIC?
And sometimes a manager’s apparently magic touch might desert them. Just look at the recent experience of one-time fund industry star Neil Woodford or Wall Street royalty Jamie Dimon who steered JP Morgan through the financial crisis before being tarnished by a trading scandal in 2012. Both remain in post for now but with their reputations somewhat checked.
Management matters, and should certainly be a consideration when assessing the investment case behind a stock. Investors have opportunities to hear from and sometimes even quiz the management of companies and if you are unconvinced then this might be a reason to sell the shares.
However, it is a mistake to think any one person can sprinkle some stardust on a situation and somehow set a company on a path to relentless growth and you should be suspicious of anyone who says different. Instead you need to look at the fundamentals behind a business, the markets it is operating in and whether or not it has a clear understandable strategy and robust business culture.
After all, what can Flint’s permanent successor at HSBC do about the pressure on banking profit from a downward trend in global interest rates? The answer: not much.