Assessment Of Management

The success and long term survival of a business depends largely on management acumen. Experience tells us that management weaknesses or mistakes are, directly or indirectly, responsible for some 70% of all corporate failures. It is vital, therefore, that the creditors must make the afford to really get to know management in order to be able to assess their entrepreneurial skills.

Getting to know management is not simply a question of dining or launching with them often. Through regular visits, creditors must assess the management's understanding of the business, whether they appreciate the potential risk and whether they have a clear strategy. Simply because their company is successful today does not mean that it will be successful in the future. Capable management has vision and are transformational in character:

• Many smaller companies, particularly family business, are driven by entrepreneurs or by the head of the family. Do they have sufficient professional support in key position or do the take all the decisions themselves?
• Is there a strong person in the finance side, who understands the needs for proper controls and processes to be in place? It is possible the person is competent but is relatively junior and not able to or willing to stand up to the owner. This can often be seen in the title given to the person.
• Companies are often successful when small but get into problems as they expand and when business becomes more complex.
• Does the owner has a extravagant life style? Is the family well regarded within the local community?
• Commence delinquency regularisation and monitoring.
• Are senior management transparent and prepared to admit when there is a problem?[Are there sufficient control in place, or is too much autonomy given to subordinates, which could lead to abuses?
• Has the owner set up a corporate structure that is excessively complicated?
• As the original owner hands power to his children, are creditors satisfied that the children understand and committed to the business?

The key element is whether the creditors could trust them!

Do not assume that the quality of the company's management is sound just because, it is a public listed company. Listed companies in Malaysia are still largely family owned and run in a dominant manner, particularly when there is a strong owner /founder at the helm.

Creditors are to consider whether the company has lived through a number of economic cycles and if expansion plans, particularly into unrelated sectors or territories are justified - many groups have gone into untested sectors or countries that have caused them many problems.

Always be on the look out for early signal of troubles....