More from the Value Investing Congress…

October 20, 2009

We’re still following along today, but one of the sessions that intrigued us yesterday was a presentation by Lloyd Khaner called “Management, Management, Management: The Key to Turnarounds”. Since we spend a lot of time paying attention to management-related issues here at footnoted, we listened pretty intently.

The basic premise is that good managers surround themselves with good people and that when those good people go off on their own to be top management at other companies, it pays to watch where those people land. One of his top examples was Jim Kilts, who was credited with turning around Gillette, selling it to Procter & Gamble (PG) and collecting close to $200 million in the process. While Kilts’ disciples may have learned good turnaround skills, they also no doubt learned a lot about collecting out-sized pay packages in the process. “We’re looking for a change in management and we start really digging when we find management that seems promising. We like to build CEO family trees.”

When I heard this, I just had to ask the question during the Q&A about Jack Welch’s CEO family tree. Welch, of course, was one of the most celebrated CEOs, probably ever, and some of his proteges didn’t exactly live up to the so-called magic. What about Bob Nardelli, who went on to screw up Home Depot (HD) and Gary Wendt, who worked his magic on Conseco (CNO), I asked. Not exactly a dose of pixie powder, huh, though both executives certainly learned how to enrich themselves in the process!

Khaner laughed at the question and said that GE would not have fit into the model because it was always too much about financial engineering and not about making significant (and often difficult) changes. Indeed! Since we last footnoted GE a year ago, the stock is down about 40%.

Image source: Marriott

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