News & Insights

Weekly update - Live long and prosper

                “You cannot explain away a wantonly immoral act because you think that it is connected to some higher purpose.”Captain Jean-Luc Picard, of the fictional United Federation of Planets

                “Talks are ongoing and everything is looking promising. But I need to inform you that you’re all officially unemployed.”Alan Johnson, Senior Loan Manager at the fictional JLB Credit in ‘Peep Show’

Both of these figures are leaders in their respective shows. Picard being a bastion of calmness and morality against Johnson’s brash moral ambiguity. So, whilst I can confirm that the United Federation of Planets is going strong in the Star Trek universe, JLB Credit’s UK branch was sadly shut in 2009.

Despite the above being somewhat in jest, there is an important theme here, and that is the often-overlooked importance of good leadership and stewardship when it comes to the overall long-term, sustainable success of businesses and institutions. No matter how good a service or a product may be, if it is mismanaged then it will never reach its full potential.

In the real world, we don’t need to look any further than political institutions for examples of mismanagement. Last week, at the Conservative Party Conference, Prime Minister Rishi Sunak announced that he was effectively axing the remainder of the planned HS2 railway – a plan that, for context, was announced in January 2012. One can either look at this as a long-term plan being miscalculated and not coming to fruition, or perhaps a prolonging of the sunken cost fallacy – regardless, the time and money spent for today’s result places this in the mismanagement camp to date.

Across the pond, the US House of Representatives has effectively immobilised itself by removing Representative Kevin McCarthy (Republican) as Speaker. Not only is this at a very alarming time, with US Government funding due to lapse in November without an agreement being reached by the House, but the issue was also brought about by only eight Republican dissenters in a House of 435 Representatives (1.8%) without a clear plan moving forward. Once again, we see mismanagement as the core issue.

From the perspective of the companies in our Global Blue Chip Fund (GBC), should they scrap a long-term plan that was 11 years in the making or have executives removed at short notice by mutinies or at the whim of powerful shareholders, then that would understandably raise red flags for us. And they do.

GBC’s mantra is to invest in quality products overseen by quality management who are likely to steward the company effectively and create value for their shareholders and you, our clients. We look upon management through several lenses, often focusing on their level of transparency and experience, attention to how incentives are aligned to the goals of the company, whether their mindset is focused on sustainable and actionable long-term goals as opposed to ego driven aspirations, and more.

Sustainable is one of the most important words above as it means ‘able to be upheld’, which is what we are seeking from competent and credible management – the ability to uphold enduring long-term growth and high returns for a company through effective decision making. We explore this topic further in our GBC Annual Sustainability Report, which was released during Guernsey’s Sustainable Finance Week.

One such example from our report is Microsoft. The company has had a particularly strong emphasis on artificial intelligence, cultivated by management through both years of investment and effective partnerships that are beginning to bear fruit and place the Company in a strong competitive position. In addition to this, they are focusing their efforts to improve their environmental standing and make amends to historical scandals. There are still areas for continued development though, such as with CEO Satya Nadella’s pay incentives, and this can all be read into in more detail in the GBC Annual Sustainability Report.

There are many companies across the spectrum of management ability, and even a technology giant with impressive management like Microsoft still has room for improvement. Here at the GBC, we pride ourselves on finding these impressive management teams that are the cream of the crop, those who can actively sustain and improve wonderful companies. And whilst we know from experience there are many Alan Johnsons in the world, there are also plenty of Jean-Luc Picards. We see it as our job to scrutinise management and ensure we pick companies run by the latter for our clients.

We hope you have a good week.