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Today we consider some of the ideas of Philip Fisher (investor and influencer of Buffett and others) who emphasised the importance of quality management throughout the organisation if it was to excel over a long time frame, meaning decades ahead.
When a management can instil a belief, not just among a few top people but generally among the employees, that it is doing everything reasonably to be expected to create a good working environment and take care of its employees’ interests, the rewards the company receives in greater productivity and lower costs can vastly outweigh the costs of such a policy. (Philip Fisher, Common Stocks and Uncommon Profits)
Comment: Companies can seem fine on the surface, with decent profits being reported in the near term and progress apparently being made. But underneath the timbers can be rotten and the whole structure close to collapse.
French Connection
One of the causes of spreading rot is disaffection among employees. When I visited French Connection (LSE:FCCN) headquarters I detected this sort of rot. Stephen Marks, founder and dominating controller, showed remarkable contempt for his shareholders. He would not even speak to them at the AGM.
It seemed a reasonable hypothesis that he showed similar contempt to those who work FOR HIM. If he does then the real talent will drift away. He will be left with the timid and those unable to leave for a better environment.
That day was saved by the finance director who had joined the company from another firm. He spent an hour with the two shareholders to answer some questions, and was very informative.
I held onto my shares counting on the reassurances from the FD and his very presence on the Board. However, it was only a few months later that he too resigned. That was the only signal I needed to sell my shares. Since then FC has increased its losses because it lacks talent from clothes design to retail store management – and I think I know why.
Some more positive examples
When I visited Titon (LSE:TON), Haynes (LSE:HYNS), Dewhurst (LSE:DWHA), AGA (LSE:AGA) Caledonian Trust (LSE:CNN) and MS International (LSE:MSI) I found family-like atmospheres, where people are not only respected but the senior managers know most of the employees by first names.
Many people have been with the company for decades, including the executive directors. Their business knowledge, and knowledge about each other, grew as the enterprise developed. They are bound together by loyalty as much as by economic necessity. Praise is lavished on those showing excellence, from top to bottom.
Take the risk of giving middle managers the opportunity to fail
If from the very top on down, each level of executives is not given real authority to carry out assigned duties in as ingenious and efficient a manner as each individual’s ability will permit, good executive material becomes much like the healthy young animals so caged in that they cannot exercise. They do not develop their faculties they just do not have enough opportunity to use them. (Philip Fishe………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
