Common Stocks and Uncommon Profits and Other Writings

 
9. Does the company have depth to its
management? 
A small corporation can do extremely well and, if other factors are right, 
provide a magnificent investment for a number of years under really able 
one-man management. However, all humans are finite, so even for 
smaller companies the investor should have some idea of what can be 
done to prevent corporate disaster if the key man should no longer be 
available. Nowadays this investment risk with an otherwise outstanding 
small company is not as great as it seems, in view of the recent tenden- 
cy of big companies with plenty of management talent to buy up out- 
standing smaller units. 

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What to Buy 
6 9 
However, companies worthy of investment interest are those that 
will continue to grow. Sooner or later a company will reach a size where 
it just will not be able to take advantage of further opportunities unless 
it starts developing executive talent in some depth. This point will vary 
between companies, depending on the industry in which they are 
engaged and the skill of the one-man management. It usually occurs 
when annual sales totals reach a point somewhere between fifteen and 
forty million dollars. Having the right executive climate, as discussed in 
Point 8, becomes of major investment significance at this time. 
Those matters discussed in Point 8 are, of course, needed for devel- 
opment of proper management in depth. But such management will not 
develop unless certain additional policies are in effect as well. Most 
important of these is the delegation of authority. If from the very top on 
down, each level of executives is not given real authority to carry out 
assigned duties in as ingenious and efficient a manner as each individ- 
ual’s ability will permit, good executive material becomes much like 
healthy young animals so caged in that they cannot exercise. They do 
not develop their faculties because they just do not have enough oppor- 
tunity to use them. 
Those organizations where the top brass personally interfere with 
and try to handle routine day-to-day operating matters seldom turn
out to be the most attractive type of investments. Cutting across the 
lines of authority which they themselves have set up frequently results 
in well-meaning executives significantly detracting from the invest- 
ment caliber of the companies they run. No matter how able one or
two bosses may be in handling all this detail, once a corporation reach- 
es a certain size executives of this type will get in trouble on two fronts. 
Too much detail will have arisen for them to handle. Capable people
just are not being developed to handle the still further growth that 
should lie ahead. 
Another matter is worthy of the investor’s attention in judging 
whether a company has suitable depth in management. Does top man- 
agement welcome and evaluate suggestions from personnel even if, at 
times, those suggestions carry with them adverse criticism of current 
management practices? So competitive is today’s business world and so 
great the need for improvement and change that if pride or indifference 
prevent top management from exploring what has frequently been 
found to be a veritable gold mine of worthwhile ideas, the investment 
climate that results probably will not be the most suitable one for the 

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