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Beware the cult of personality

The cult of personality surrounding certain individuals in the business world, which holds that the people in question can do no wrong, is dangerous. 

Extremely dangerous. Yet in the investing world this mentality runs rampant. 

Warren Buffett is probably the best example of someone who, in the eyes of lay investors, can make no mistakes. 

And while his formidable reputation is deserved for the most part, this perception from investors is a concern for two reasons. 

First, things can always go wrong regardless of who is in charge. Second, what happens when they leave?

Buffett (and there I go lionising a cult personality) reportedly said: “Buy into a business that’s doing so well an idiot could run it, because sooner or later, one will.” 

How often do we invest in a business in part because of stellar management? 

Then one day, this person moves on.

Shoprite* chairman Christo Wiese is quoted as saying, when commenting on former Shoprite CEO Whitey Basson’s huge bonus: “If I could find another Whitey Basson, I would happily pay him a billion. A guy with his talent is terribly rare. And the performance is there.” 

Fair comment on his performance, but all indications (and it is early days) are that Basson also left behind a quality business run by a top management team that will continue to replicate his success. 

In other words, maybe Basson’s talent was as much about transferring his skills to the next generation of management as it was about running Shoprite? 

Another local example is former Steinhoff CEO Markus Jooste. 

Before Steinhoff collapsed, many investors in the company literally stated as their investment case that Jooste was a genius and they trusted him and were happy to be along for the profit ride.

And then the group’s wheels came off (and its woes continue to worsen, judging by recent statements regarding its property valuations).

Now, Jooste is the easy example to pick on. But the JSE has a number of other potential cult personalities. 

Another example is Brian Joffe with his recently listed Long4Life*. 

The stock soared to almost 840c when all the company had was cash worth a little over 500c a share. 

That basically valued Joffe at a staggering R3bn, based on the number of shares in issue and price above cash value. 

Make no mistake; Joffe is a dealmaker with a solid reputation. 

But R3bn?

Perhaps the important point is that a team always needs to be running the company to ensure continuity and risk mitigation. (What happens if the CEO is hit by a bus?)

A single individual may be the face of the team and be quoted in the media, but a quality company is always going to be about more than just one person. 

Maybe companies need to make this more apparent. 

Some listed companies try this by sending out different senior executives at results time to get more faces into the spotlight.

An additional hazard comes in the form of complexity. 

I have written before that a complex business adds extra risk when investing. 

Any complex business can be misunderstood by investors. Complexity also means there are more moving parts where things can go wrong. 

Add a cult of personality in the management team into the mix and the risk increases.

As investors we certainly appreciate a great CEO. 

But we need to see past that one individual – companies also should be more transparent about the team and succession planning, as Berkshire Hathaway is doing ahead of Buffett’s eventual exit. 

We also need to be fearful when the investment case is more about management than the quality of the business because, as Buffett says, one day the idiots may arrive to run the company. 

A great management team is fantastic, but the quality of the company is always more important.

*The writer owns shares in Shoprite and Long4Life.

This article originally appeared in the 26 April edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.

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