Bad Management Danger Signs

Bad management is everywhere and investors need to be on the lookout. Here are signs that should send shivers down shareholder spines. Plus, a suprising sector that offers good management and value.

Such bad managers represent a big problem not only to buyers of shares, but also to their employees and their communities.

I've seen it first-hand, and it's not a pretty tale.

Starting in the late 1990s, I worked as a compensation specialist in the auto industry for a publicly-traded company.

Within a few years, the firm was forced to file for Chapter 11 bankruptcy protection. Shares now trade on the pink sheets at around 0.6% of their original value.

What happened?

A big part of the problem was an entrenched executive team that couldn't seem to see its way clear to look after shareholders.

Consider the following example: I had devised a bonus plan for a group of sales professionals dedicated to selling parts. The plan was heavily weighted toward commissions, and could theoretically have resulted in huge payouts for the salespeople.

The divisional head opposed the idea, however.

The plan I had developed, he said, was no good because it was theoretically possible for one of his salespeople could earn more than he did.

But there's the problem: Why should that worry him?

If any of his people earned more than he did, it would be only because they had sold loads of products, presumably at huge margins. Such profits would have ultimately resulted in a nice bonus payout for him, also.