I had occasion earlier last month to sit down with well respected Brambles CEO Tom Gorman. Brambles is best known for its CHEP pallet business, which plays a key role in the supply chain for many consumer goods companies, including the likes of Walmart and Costco. In Mr Gorman’s 6 years as CEO the Brambles share price has grown from $7.00 in November 2009 to $10.52 today, and paid $1.59 in total dividends over that period, for a total return of 73% (before imputation for Australian investors). This compares to a total return on the ASX the over the same period of 44.5%.
Mr Gorman’s thoughts on what makes a good CEO made for a thoroughly insightful discussion.
“Customer intimacy” is paramount. While it is a CEO’s challenge to find the right balance between the interests of customers, employees and shareholders, it is vital that the interests of customers are front of mind. Without engaging and retaining customers, there can be no sustainable business over the long term. In Gorman’s view, network efficiencies need to be shared with customers. This can either be through better pricing, or through the sharing of data and analytics that can improve customers’ supply chains. Returning all efficiency wins back to shareholders might well work in the short term, but long run sustainability means that cultivating relationships with customers is all important.
A CEO must also drive accountability across the business. This includes their own performance. “Do what you say you are going to do” is the mantra that a CEO must live by. Moreover, a CEO cannot be afraid to get rid of people in the organisation who are not performing. While this is a harsh reality of a CEO’s role, it is a strong tool in driving organisational excellence and achieving business targets.
Lastly, a good CEO must always be ready to preempt and counter disruption risks to the business model. Investing in technology and gaining efficiencies is key to “widening the moat” and reducing the likelihood of being surpassed by competitors. Under Gorman’s leadership, Brambles has continued to reinvest in pallet technology, work with its customers on supply chain efficiencies, and invest in new and emerging markets, including Eastern Europe and South America. This long term focus has sometimes been at the expense of short term profits.
The quality of management is an important consideration in investing in any company. As shown particularly since the end of the financial crisis, many a good business can be brought low by poor management. Finding and backing good leaders isn’t easy but can certainly be rewarding.
Marc Whittaker
Portfolio Manager
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.