Evaluating a Technology Company's Management Team
by EngineerSalary Staff

Engineers are aware that it's essential for a company to have a solid senior management team... if they are going to be successful there. Making a determination about the quality of management is important before you accept an offer - and at a small to medium sized firm this becomes a much larger part of the weighting formula.

The problem is that evaluating the management team is difficult - and usually completely ignored by potential employees. Candidates can't always be sure of a company by reading financial statements, and most engineers don’t have the time -- or inclination -- to do this.

Disasters such as Enron have demonstrated the importance of discovering the qualitative aspects of a company prior to accepting an offer. There is no standard methodology for evaluating management, but there are certain factors to which you should pay close attention - before making a decision to join them.

This article applies to every technology job seeker considering a move, from the entry level engineer to technical experts and engineering managers. You should do as much research on the company as they do on you. In fact, you should do more.

Management

Solid management is the platform that any successful company is based on.
Not engineering expertise, great technical products or a nice environment. Management can make or break a technology company. Technical staff is important, but it is the executive management team that ultimately makes the long term strategic decisions that will impact your career – the part you have absolutely no control over. Even companies with excellent technology have failed, due in large part to how they were managed.

The executive team of a company is directly responsible for creating value.

Management should have the business savvy to run a company in the best interest of the owners, usually shareholders. It is unrealistic to believe that management only thinks about the shareholders. Managers are individuals looking for personal gain, and to enhance their own careers. Problems arise when the interests of the managers are different from the interests of the shareholders.

The theory behind this is called "agency theory". It says that conflict will occur unless the compensation of management is tied together with the interests of shareholders.

Management must have some tangible reason to be beneficial to the shareholders… and ultimately to the employees.

Stock Price Isn't Always the Best Indicator of Quality Management

The true value of a well run companies will be reflected in the bottom line (and the stock price). There is some truth to this over the long run, but strong performance in the short term doesn't always guarantee good management or longevity.

The best example of this is the failure of thousands of dotcoms. Back then, everybody was talking about how the new entrepreneurs were going to rewrite the rules of business. The stock price was claimed as a positive indication of the company's success (in most cases, the only indicator). The market, however, behaves strangely in the short term. Strong stock performance doesn't mean you can be certain the management is of high quality.


Hype is a contributor of short term gains. Even one glowing blog post can spike a stock price (written by someone who is speculating on the success of a product). In most cases, they do not have the technical training and experience required to render a serious opinion. They are listening to what management, news releases or insiders feed them... and publishing it. Always check the reputation of the source.

Tenure

One excellent indicator is how long the CEO (and other top management) have been with the company. This information is readily available online, and should be checked.

One of Warren Buffet's investment criteria is to look for solid, stable management teams that stick with their companies for the long term. This has allowed him to grow over $150B in holdings for his company... and his investors.

Strategy & Goals

Find out what kind of goals management developed for the company.

Does the company have a mission statement? A good mission statement creates attainable goals for both management and employees. It's a very bad sign when companies pepper their mission statement with the latest industry buzz words and corporate jargon that no one can translate. Some mission statements contain very little useful information, and are in place because it's good to have one. Read and evaluate it.

Mission statements are normally available to anyone. Compare it against what you were told in the interview. If the two ideologies don’t reasonably (not exactly) match, avoid the company, or ask for an explanation.

Insider Buying & Stock Buybacks

If insiders are buying shares in their own companies, it's usually because they know something that normal investors do not know. The key insiders buying stock regularly show investors that managers are willing to invest their money back into the company, because it has value.

The key here is to find out how long the management holds shares. Flipping shares to make a fast buck is one thing; investing for the long term is another.

Compensation

Executives are highly compensated. The fact is, quality management pays for itself by increasing company value.

You have to be immediately suspicious if a senior manager makes a huge amount of money (in salary and peripheral compensation) while the company suffers. If a manager really cares about the shareholders (and employees) in the long term, would this manager be paying himself/herself exorbitant amounts of money during tough times?

As with stock ownership, find out if management is using options as a way to get rich quick -- or if it is actually tied to increasing value (over the long term). You can find this in the Notes to Consolidated Financial Statements. All this information must be reported if the company is public. It is located in the back of their Annual Report.

Conclusion

There is no single best way for evaluating a company's management, but we hope the issues we've discussed will give you some ideas for analyzing a company in more depth.

Less than a couple of per cent of engineers venture into the financial stability of a potential employer. They thoroughly evaluate the position, requirements, technical resources, new and existing products, their compensation (via the offer), benefits, future technical direction… but ignore senior management as a criteria for accepting an offer. This is a factor that should always be considered. Astute job seekers want to know how stable the company is before joining it.

Don’t loose sight of the fact that even horrible, mismanaged or financially strapped companies can make outstanding offers. If you are going to be back on the market in a year the great offer becomes suspect -- and is worthless.

Check out the company. It is not difficult, and unless the company is privately held, large amounts of information can be gathered from public sources. Understand how they increase shareholder equity. Looking at the financial results is important, but it doesn't expose the whole story. Spend time investigating the people who sign those financial statements, and shape company direction. It is dull and tedious, but essential to making an informed decision. By accepting their offer, you are investing your career in them.

A company that was a high flyer ten years ago may be one that you want to avoid today. Every experienced engineer or engineering manager can name a few losers, and many have already worked for one.

A couple of hours online can yield incredible amounts of information about how well a company is managed, who is managing it and how it will ultimately impact you.


Find a Better Engineering Job Here




Restrictions and Copyrights: Information published in the EngineerSalary website may be displayed, and printed for your personal, non-commercial use only. Data, information or other components may not be republished, reproduced, reprinted, distributed, disseminated, duplicated or resold in whole or in part, for commercial or any other purposes. You may not modify, copy, distribute, transmit, reproduce, publish, license, create derivative works from, transfer, or sell any information obtained from EngineerSalary.com.