Management Relationships

Of all the uncertainties in an investment case, there are few which are more opaque than those attached to management. What are they truly motivated by? Why has the CEO really been selling shares? What influence, as a small shareholder, can we really have on their decisions?   

The truth is that we will never know, nor can we ascertain whether our engagement can spur a particular reaction. We do, however, embrace human changeability as just another aspect of investment risk, and one that should not be shied away from. We are no more likely to make accurate predictions about future profit margins, than we are of management ambition, so why should we dedicate any less time?   

Management quality is a key driver of long-term performance, especially amongst small, founder-led companies on the cusp of scalable or disruptive growth. We believe that the only way to properly understand the dynamic is to engage with key management.  

For us, the question of management quality and engagement are interlinked. To understand how management will shape the business’ future, we must get to know how their experiences have shaped their ambitions. We want to understand how they operate, what motivates them and the incentives which exist for the wider team.  

Managerial open mindedness is often an indicator of the growth mindset we seek to support. To uncover this, we ask questions which encourage blue-sky thinking alongside sustainable growth. We look for leaders who are passionate, experienced, committed and patient. Who embrace the power of possibility, are humbled by their achievements, and inspired by others. They seek a constructive board to support their ambitions, enrich their experience and challenge where necessary. These qualities tend to correlate with openness to engage with stakeholders outside the board: employees, suppliers, customers, communities - and

Inthallo’s approach to engagement goes beyond periodic meetings and due diligence. It is something proactive which embraces the possibilities of mutually beneficial interactions; requiring time, travel and a preference for physical rather than virtual meetings. While occasionally arduous, these commitments reward us with fascinating, sometimes unexpected insights which enhance our understanding of the company. Crucially, these interactions create space to share our thoughts and aspirations with management. This environment encourages both parties to strive for shared interests, and introduces the possibility that our insights, ideas can translate into actions that will strengthen the company’s prospects. 

We have one eye on the realities of day-day operations and one on the 3-5 year horizon. We monitor our holdings closely but respect management’s time. We choose to engage when there are relevant updates, when we have topics to be explored and most importantly, when management comes to us with questions around growth, equity raises, talent or ‘ESG’ - something we take seriously, rather than to complete a checklist. We listen and learn, rather than preach and push, because we find that the best conversations happen between two engaged parties with shared interests.

To return to the opening question. Whilst we can’t measure the degree of influence our engagement might have, we can take comfort in the correlation between our

By Abbie-Louise Gilbert