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How We Assess Management to Identify Endurance

As investors, we seek companies with a strategic market position in their competitive marketplace, consistent unit growth, and high returns on invested capital. All are of paramount importance. Our investment team also insists on investing in companies, regardless of the economic backdrop, possessing the ability to internally finance their growth so as not to be dependent on the credit and capital markets. Key to this is our assessment of company management. Endurance demands strong leadership.

Riverbridge, unlike most market participants today, seeks to invest in companies for multiple years—sometimes even decades. In fact, across our portfolios we have invested in many of our companies for more than ten years. Over this long time period, many variables change. Geopolitics shift. Interest rates and inflation ebb and flow. Investors celebrate bull markets and cope with bear markets. Too many management teams lose their way while attempting to navigate these events and the ever-changing landscape. Due to short-term performance pressures, management teams tend to prioritize execution and efficiency and often neglect their original reason for existence. This inattention to mission leads to a slow but consistent erosion of corporate culture. Strong management teams are needed to traverse these ever-changing conditions while executing their corporate missions.

Riverbridge is distinguished by how we define quality management and qualify the leadership of our businesses. The truncation of the investor time horizon has caused the definition of “good management” to shift to near-term execution as opposed to long-term vision. Riverbridge strongly believes the adage that “culture eats strategy for breakfast.” We invest in management teams focused on the next decade and beyond. Enduring investments require leadership to cultivate a culture encouraging and even demanding constant innovation—even if it comes at the expense of near-term earnings. Expert management understands this sacrifice builds earnings power.

Riverbridge validates its assessment of management through our peer review process. Following extensive conversations and onsite visits with the management teams of prospective companies, our investment team conducts an exhaustive peer review. We meet with customers, suppliers, competitors, and other industry participants to gain their viewpoint of this management team. We seek to understand if differences exist between the way management views themselves compared to how they are perceived in their competitive marketplace. This discipline naturally leads us to management teams well respected in the eyes of their peers.

With market displacements becoming increasingly common throughout the global economy, strong leadership is of paramount importance. Barriers to entry in many industries have been lowered due to technological innovation. Companies possessing visionary leaders will be able to better navigate their ever-changing landscape. These leaders understand and carefully cultivate their cultural advantage to retain talent and to develop an enduring soft edge within their business. Riverbridge will continue to seek out companies with strong leadership that possesses the ability to traverse the continuously changing environment.

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