Poor Management a Double Liability in Unprofitable Business

It is a true remark that the determining factor in keeping an unprofitable business running is often the natural desire of the management to hold on to their jobs.

Unfortunately, poor-caliber management is more anxious to hang on than high-caliber management, since the latter can usually find other and perhaps better employment elsewhere.

Thus, good management can make most businesses successful, and if the obstacles to success are insurmountable it will try to work the situation out in whatever way will yield the best results to the stockholder. *

Bad management often makes an intrinsically good business unsuccessful; it bitterly opposes any move that will hurt its own position, whether the move be in the direction of

• improving the management,
• selling the business at a price far above the past market value, or
• discontinuing it altogether.

Ref: Security Analysis by Graham and Dodd

* The case history of Hamilton Woolen showed how a capable and conscientious management dealt with the problem of continuing a hitherto unsuccessful business. The question was twice put to the stockholders for a vote. In 1927, they voted to continue the business, with new policies, and the results were satisfactory for a time. In 1934, following a disastrous strike, they voted to liquidate the business and realised considerably more than its previous market value as a going concern.

Ref: Security Analysis by Graham and Dodd