No matter the position within the value chain, we are always outsourcing capital allocation in some instance. In this way, looking for outstanding capital stewards is of top priority for funds' clients (looking for great funds), portfolio managers (looking for great companies) and executives (looking for great projects).
In this paper, it's argued that no matter the insider ownership, one must analyze and trace the profile of key people. Stating the obvious: no matter if the key executive has 90% ownership in a company if he's a gambler who loves leverage willing to bet his entire fortune in one eccentric new segment. Right?
Analyzing people, their behaviors and habits, their principles and goals, their formal and informal incentives, is of main importance. We must remember businesses are run by people, so let's put "number crushing" a little aside.
Is the corporate culture appropriate? Is a repeatable mechanism entrenched in employees routine? Are leaders' personal goals aligned with the company's formal strategy? Which are the perverse incentives in place? What are the executives/board members' personal agenda main items? Do they conflict with the company's path? How?
Can you think of more questions?
Food for thought.