Does the company have a suitable organizational structure and management depth?
Updated: May 11
An organization's culture is the personality of a company just like individuals have personalities.
What is organizational culture?
An organization's culture is the personality of a company just like individuals have personalities. There are so many stories about great companies such as American Express, which has an outstanding culture ensuring that not just customers but also employees are taken care of. The same way Tata group. The way they take care of the customers, employees, suppliers, and society, in general, is noteworthy.
How do we understand the culture of an organization?
Investors must talk to existing and former employees of the organization. If a former employee is praising the culture of a company, it is a positive sign. We must also reach out to suppliers and customers. This will help us understand whether the company is taking care of its customers and paying to suppliers on time. A company that ensures the interest of everyone including employees, suppliers, customers, and shareholders, has proven to be a great value creator.
There are small companies that are growing very well. The reason behind that is a great leader or a promoter. This promoter is often well respected within the company as well as outside the company. To make business success sustainable there should be succession planning that looks beyond the leader or the promoter of the company.
A company must have sound succession planning. This is an issue often seen across Indian companies because they are run by promoter families. The next generation may or may not be suitable to run the business. The next generation must be given appropriate experience across different dimensions of the business. They must be placed in different departments so that they get the right exposure and understand how the real work is done. The promoter family must also realize if the next generation is not suitable to run the business, external professionals must be hired to run the show.
Do the owners have enough skin in the game
The objective behind skin in the game is whether there is a potential alignment of interest between majority and minority shareholders. In the case of listed companies, we can often see that usually promoters have a high stake in the company and that’s a good sign. This will ensure that promoters are committed to the well-being and growth of the company. Investors must pay particular attention to where there is a high pledging of that stake. It’s not a good sign if a high percentage of the stake is pledged.
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Details of the advisor
Advisor: Ankur Kapur
SEBI RIA No.: INA100001406
BASL Member ID: BASL1337