Management: Likeability, Strategy & Communication, Skill-Set

Management is invariably quoted as being the most important aspect of reaching an investment decision on a Company.  The thesis is that you’ve got to really understand and respect the management of the company if you’re going to invest in it.

Clearly the Con series, this series of lectures or podcasts, highlights lots of factors that are critically important and I won't dogmatically put one thing such as Management or Commodity selection as the most important component in reaching an investment decision. But for now, let's run with the assumption that it is important to assess or rank management management teams.

And that raises an immediate question, which is how do you measure what management is up to, encompassing both hard and soft issues?  What are the metrics to track management performance,  and can an investor understand what management is really about?  A lot of it is so subjective.  It’s what you feel, it’s what you think, it’s how they come across.

I found it harder than I thought it would be to write this section and in the end I whittled down the appraisal of managment to a four part approach. The first three parts would be covered in this episode, and for reasons of time, the fourth part will be covered in next episode, episode 32.

The four criteria are

1. Likeability
2. Strategy and Communication
3. Skill-set
4. Credibility, Delivery, Results

Now, starting at the beginning with Likeability

The question is, you like the management team? This is of course the most subjective topic of course and that will influence investors a lot. In fact it is completely subjective and actually not vitally important.  You don’t need to like someone to put your money with them.  They can make money for you whether they are frankly hideous people or not, but surely some of the point of investing is that you want it to be an enjoyable process.  I mean there may be some sadomasochists out there who particularly want to get involved with an obnoxious or objectionable CEO or management team, but for me investing in a company is very much linked to whether I like the company or not.  It’s not essential, but life is short, why make it hard for yourself?  Why not make it fun?  Why don’t you just go for a team that you like?

There is also the probability that the you will like people that share your own values. Looking for your resources company to treat people well? To be a responsible corporate citizen? To look after shareholders and employees rather than gouging the company for personal gain? It's more likely to be people with an ethos you respect, and people you like that do a job that mirrors your own outlook on life. In fact, that is probably the most important word, respect. You have to respect the leaders of the company in question.

Perhaps also, there is an element of finding the management team that personifies the ideal you - a subliminal projection - the romantic image of the exploration geologist, genius at finding ore bodies maybe, or the grit and charisma of the leader who can build mines, raise capital, cajole governments and deliver shareholder returns. But let's leave the amateur psychology aside and move onto the next topic... which is...

Strategy and Communication

Does management have a strategic plan and can they explain the investment case to punters? It is important that they do both. Teachers say that a good way to test whether you really know a subject is to try and explain it to someone else. Investors should look for a CEO who can develop a strategy and then communicate that strategy very clearly, which is the heart of how that company is marketed, and the starting point of the outreach and stakeholder engagement of the company.

In short, how does the Company articulate its investment case?  What is their marketing strategy and how well do they do it?

This can be measured across a number of metrics.  The first is the quality of the collateral or the copy that they produce.  Look at the website, the presentation, the videos, are they professional, are they well done?  This needs to be good.  There are no excuses.  I’ve seen so many archaic, dated, presentations, you just open them up and you go oh my goodness, can’t you see that the way you’re presenting your ideas is already stale, it’s already 15 or 20-years behind the times.  Spare me the text-heavy death-by-powerpoint presentation that is actually a long report crammed into 20 slides.  Having said that, even though every time I see one of these 'my first powerpoint' presentations I sigh, they are actually pretty useful. It's a really quick way to weed out a management team! Taxi!

And yes, I know why the wordy report-style presentations are done. It's the most up-to-date take on the Company. It's a central repository for all the information in one handy place. It's the first port of call for investors on a website. Yes, yes, yes, I know all that. Then why, in the name of all things sacred, do so few presentations actually describe an investment case, or how they are going to create value for shareholders? harumph.

It's infuriating. Time and time again resource companies cram every conceivable detail into a presentation to ensure that investors have access to all of the relevant information. Which, surely, is not the point. That's what Financial Reports and the MD&A, the Management Discussion and Analysis are for, and surely a presentation is a vehicle for communicating a story?

Time and time again, if the presentation isn’t fresh and vibrant and if the website isn’t kept up to date, then you know that things are not going to take good care of.  Now I’m not saying that everything has to be cutting edge and the very latest thing in websites.  Websites typically only get reviewed or revised every couple of years and so things don’t always have to be totally crisp and professional, but it helps.  And, there are absolutely no excuses in this day and age to having an overly wordy presentation.  If you have an overly wordy presentation you can almost guarantee that it’s written by a bearded, pale male and stale mining executive throwing up barriers to communication including a verbal incontinence on the page.

Once again, the copy, the collateral, the way that the presentation is done, the way that the news releases are written, needs to be crisp, it needs to be in focus, and it needs to explain the idea well.  You have to be able to communicate the strategy in a couple of slides or in 10 slides and if you go wade through a presentation with page after page of unintelligible guff, it shows me that the team haven’t got a clear strategy and it hasn’t got clear leadership.

When you give a presentation you need to be shown the idea very clearly and this is absolutely critical because if the company, the senior management cannot communicate it, they don’t have it clear in their head and they cannot articulate it.  When you’re looking at management always look at the collateral.

Marketing in this day and age, post-COVID, or with-COVID rather, needs to include an excellent digital media strategy.  More and more marketing is being done digitally as opposed to in-person, there is even more reason for a company to have a joined-up strategy on communication.  Interestingly, with my corporate hat on, I can see that there are lots of ways to waste money.  Companies can spend a lot of money getting thousands of low-value views or clicks on marketing collateral, without it translating into actual buying. Digital marketing is not just about Twitter and Instagram and LinkedIn and alerts, although it does encompass that.

A crucial aspect of marketing of the investment case is that Companies do need a relentless agent on its behalf or in the team telling a network of individuals to buy stock.  Quite often I see perhaps in the more successful companies, or the ones that I’ve been looking at for the last 12-months that have been successful anyway, there’s a split between the senior management team where there is a senior person in the team whose sole job is to communicate the investment strategy to the investors, to the market, and to be a public face.  But also, they’re not just an IR person, they’re not just a marketing person, they’re actually in control of the strategy and driving the business as well.

Sometimes it’s the CEO, sometimes it’s the President, but when there’s that nice duality between two senior people who share a lot of the leadership roles, that can really, really go far.  For example, in Karora, the Canadian company mining in Australia, you’ve got Paul Huet who’s the CEO and he does relentless marketing, and you hear him speak and you can be slightly overwhelmed, but he's out there telling the story and saying what they're going to do and then telling you again that they've done it, which is so vital.  Equally, he’s got his right-hand man in Graham Sloane, the COO, who's actually running the operations in Australia.  Clearly,  the two of them work very well together, ably supported in the strategy and comms work by Oliver Turner.

Another example is Minera Alamos with Doug Ramshaw and Darren Koenig. Doug’s the President, Darren’s the CEO.  Obviously, they both contribute to the strategy, but they respect each other, and Darren seems to more or less run the operation.  From what I can tell he deals with the government and all of that side of things and Doug appears to be the market-facing individual.  Again, you need that kind of relentless agent, just telling people to buy, to buy, to buy.  You can really spot the companies where you’ve got someone picking up the phone the whole time.  It keeps them alive.  Obviously there has to be something to talk about.  News flow is a critical aspect of it, to that and it needs development, it needs to be meaningful and it needs to be following out on a path of well-defined strategy which has got scale, and which has got vision.

There’s no point just pushing and pushing and pushing when something isn’t ready to go.  Remember this is very much a news-flow dependent business.  But if you put all of that together, if you’ve got a clear collateral, you’ve got a digital media strategy and you’ve got a good spokesman then that is a key , an essential part of judging good management and I can point to many, many companies that do not do it well.  A messy website, a bad presentation and someone who can’t articulate a strategy well on a regular basis, I would say that that is an absolute avoid, because without it the Company is extremely unlikely to outperform.

You can avoid it, so you should avoid it.

Which brings me on to the next topic.

Is Management appropriately skilled for the job in hand?

Are they trained in the right skills; do they have experience in the explicit area for this company? At its crudest, there’s no point having someone who has done Iron Ore management who is trying to do Gold exploration .

The next major objective analysis of a management team is really the skills in the top team.  Are they appropriate?  What I’ve seen several times before is metallurgists and accountants trying to run exploration companies and that typically doesn’t work.  I think really the most important thing here is to understand that some people in their career are … the way you can split it, is into keepers and growers.  So, if you’re the CEO of a company you can quite often see in your team that you’ve got people who are the growers and you’ve got people who are the keepers, and they are both vitally important.  But they approach their careers and their lives in a very, very different way.

Keepers are typically meticulous, very focused on attention and on details. They’ve got extremely good attention to detail.  They are very happy in a stable position and they run their division extremely well, whether it’s metallurgy or in terms of geology or mining engineering.  Those people often have a long career on the technical side of things.  So, they can run through their 20s and their 30s and possibly their 40s and into their 50s without really changing the nature of their role because they rise into ever more senior positions that mean the nature of their role is administrative and management and that is absolutely vital within the company.

But it’s very different to the grower mentality which are people who come in with a technical skill set, they run for a few years of getting their experience built up on-site, whether it's as a geologist, a mining engineer or a metallurgist or event in accountancy or banking.  But what they’re keen to do is they’re keen to morph their original career. They’re keen to run businesses.  They’re keen to communicate. They’re keen to take on leadership roles.  They often go off and do MBAs.  Or sorry, not often, sometimes go off and do MBAs, but it’s kind of that ambition or that hunger to change.  Whereas the keeper is looking to excel in the regular side of things.

Since I wrote that section I have learnt that Teck Resources actually incorporates exactly these distinctions within their org structure. In Exploration, Teck geologists can pursue two parallel and equally valued career paths, with one path offering continued progression as a geoscientist (the keeper) and the other path offering continued progression as a manager (the grower). It's nice to have my empirical observations endorsed by operating practice in a leading global company!

Anyway, what I see, particularly in junior mining companies is that the Keepers, which is geologists who’ve been doing it for 20, 30, 40-years, the expert mining guys, the top-of-the-tree metallurgists, they get to the point where they think actually no, I can do that, I’ve got all the experience to do that and they set themselves up as CEOs of mining companies and they do have all of the skills appropriate for doing the technical side of things.  But they’re completely ill equipped for the marketing, the outward facing bit, understanding the capital markets side of things.  So when looking at the skills appropriate, it’s much rarer to find a natural resources team where the guys don’t know their stuff, on the technical side of things.  But quite often they don’t know their stuff on the marketing side of things. They are Keepers in the role where Growers are best suited.

Exploration companies being run by metallurgists and by bankers and by accountants and heaven-forbid - ex-army officers: that also doesn’t work. The closest you can get is when you have a split at the top where there’s two people who have become very comfortable working with each other and one is the CEO, and one is the person who does the marketing.  But don’t overly invest in companies where the senior people are not appropriately skilled for the job in hand.  Exploration is such an idiosyncratic business, that I would always say you need someone who’s got a lot of exploration experience in there, not a banker, stock-broker, metallurgist, accountant or army-officer.

When it comes to the bigger companies, when you’re in production and when it's more about the management of a business which is the same as any other business, in the sense of kind of the bottom line and margin, and then, of course, the accountants and the bankers and the metallurgists and the engineers and anyone with a mind to detail and a general understanding of the business, can do that.  Well as long as they are of the grower type which have got the vision and kind of the leadership skills.  So, maybe this is all too soft so far, but how do you actually control and check on management?

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