What the remuneration report can tell a canny investor

While some investors may see the fuss about remuneration as ‘full of sound and fury and signifying nothing’, others understand that, like most things in the world of company valuation, the more you look the more you see.

And in a time when corporate communication is carefully guarded and controlled, for those who know where to look, the remuneration report is an open back-door into many aspects of how the company and its directors really think.

So let’s look at five fundamental questions that the remuneration report can answer, if you know what you’re looking for.

#1 To what extent has management ‘captured’ the Board?

The absolute amounts on offer to the CEO and the executive team should be of interest to any investor, but not because of the simple politics of envy.  Rather, the amounts on offer tell a great deal about the power that the executive has over the Board and ultimately how effective the Board will be in overseeing the actions of management.

If the Board is convinced that they have to pay the CEO far more than what is offered elsewhere, it says the Board places inordinate importance on keeping this CEO.

Any Board that is that enraptured with its CEO is unlikely to effectively oversee his performance or provide the vital check to the power invested in that role.

This can be a particularly dangerous situation for investors when the company is considering questions of capital allocation.

#2 What’s more important to this Board: substance or form?

Long term incentive plans (LTIPs) are a ubiquitous feature of remuneration reports.  Since the advent of the ‘two strikes’ policy, the form of LTIPs has narrowed to those most likely to be approved by the governance advisory industry.  Typically this means using relative TSR, cliff vesting (ie nothing for performance below the 50th percentile of the peer group), and a testing period of three or more years.

But, as many directors will quietly admit, they are also a colossal waste of money.  This is because the vast majority of executives who participate in this type of LTIP see any rewards that it offers as so beyond their control that the LTIP is really little more than a lottery.

In fact a 2013 study by PwC and London School of Economics professor Alexander Pepper showed that only 38% of Australian executives rated their firm’s LTIP as an effective incentive.

The capriciousness of the typical LTIP and its consequential ineffectiveness as an incentive is not new.  So, a Board that chooses not to employ the typical LTIP may well care more about effectively applying shareholders’ money than following the listed company herd.  A focus on substance over form augurs well for the treatment of shareholder funds in other matters.

#3 What does the Board think really drives the value of the company?

It is fair to assume that most public company directors are genuine in their desire to see the value of the company grow over time.  But what do they think really drives the value of the company?  Is it earnings growth?  Asset growth? Free cash flow? A higher return on equity?

This is important, because ultimately the Board is responsible for the big capital allocation decisions that can make such a difference to shareholder returns.  On what basis do they judge those opportunities?

Few companies set out what they think drives the value of the company (unfortunately), but the remuneration report can provide useful insight into this question because in structuring a reward program, the Board must answer a basic question, ‘What are we prepared to pay for more of?’

Assuming the Board will reward more of what they think drives the value of the company, the metrics used in the company’s reward programs are telling.

For example, Boards that reward EPS or EBITDA growth trumpet to the world that they recognise the importance of profit growth.  But they also make it clear that they don’t value what rate of return the business generates on investors’ capital.  After all, money invested at as little as 2 or 3% will grow EPS and EBITDA, even as it destroys the wealth of investors.

What does this mean when the company is faced with a major capital allocation question?  Any Board that is prepared to reward managers for EBITDA or EPS growth is likely to view favourably investment proposals that grow EBITDA or EPS, even if that means a return on investment as low as 1%.

A Board that pays for EPS growth or EBITDA growth either doesn’t understand the importance of generating a return above the cost of capital, or doesn’t care.

Return based measures, such as Return on Capital Employed (ROCE) and Economic Profit signal instead that the Board is awake to the importance of getting a decent return on investors’ money and of encouraging managers to recognise this as well.

What’s more, a remuneration report that includes transparent return measures signals the company’s confidence that it will be able to invest funds at attractive rates of return.  EBITDA and EPS based reward structures are silent on this point.

#4 How aspirational are management?

Most investors accept that the growth prospects of a firm are vital in assessing its value.  But the actual growth achieved by a firm is dependent on the aspirations of management and in particular the targets that they set for themselves.

How can an investor get a sense of how aspirational a business is likely to be in its target setting?  For any business priced for strong growth, investors need to watch for two flags, found in the remuneration report that may threaten how aspirational the business is in its target setting and hence how fast it grows.

First, where financial metrics are used, watch for Short Term Incentive plan targets set off budget.  In this situation, managers can improve their rewards by either improving performance or lowering the budget.  The latter is most likely easier than the former, especially given management are closer to the business than the Board and so better able to negotiate a target to their advantage.

For investors, tying incentive targets to budget can be very damaging.  Not only does it waste resources by dragging out the budget setting process, but budgets that have been ‘sandbagged’ lead to missed sales and profits due to under-resourcing.  Worst of all, it creates of culture mediocrity, where setting aspirational targets is actually in direct conflict with the interests of managers.  And it has a corrosive effect on the organisation as managers down the line see that it pays to lie to their superiors.

These problems are also found where rewards are made at the discretion of the Board.  Here what is likely to matter most to the executive is managing perceptions; perceptions of how well management has performed in the circumstances.

It pays then for the CEO to bring down Board expectations by putting up plans that are as conservative as he can get away with.  Again this is the opposite of what is needed in most companies but especially in one priced for growth.

#5 Are management being paid to grow the value of the company?

From an investor’s perspective the ultimate question on remuneration must be, ‘Are management being paid to grow the value of the company?’

Most investors would look to equity based remuneration to address this question.  But as we have seen, most managers ignore the typical equity reward program, treating them as little more than lottery tickets.

As the PwC/LSE study found, managers actually put far greater emphasis on salary and short term incentive payments.

Salaries are largely a function of size – the bigger the business that I run, the bigger the salary I take home.  But revenue levels, assets or headcount – all the size measures used to determine salaries – are poorly correlated with growing shareholder wealth.

That leaves the humble Short Term Incentive Program (STIP) to do all the heavy lifting with respect to directing management attention toward growing the value of investors’ capital.

Unfortunately, most STIPs are designed to create management wealth, rather than shareholder wealth.  They function more as deferred compensation than truly ‘at-risk’ compensation.

Here again, there are clues to how well the STIP will align management’s interests with those of shareholders.

Firstly, how many measures are used?  The more measures are used, the greater the ‘portfolio effect’ that will apply, allowing managers to get some reward even in a very poor year.

Second, are incentive targets set off budget, allowing managers to increase their rewards by ‘sandbagging’ their plans?

Finally and most telling: is the STIP capped?  If the STIP encourages managers to sustainably grow the value of the firm, why would the Board ever cap it?  Why would they ever say to managers, ‘This much shareholder wealth is enough: we won’t reward any more’?

No, a cap on an STIP is a vote of no-confidence in it, by the designers of it.  It says loud and clear, ‘This incentive plan does not pay managers to grow the value of the business.’

In summary

The purpose of equities research is to glean an informational advantage over other investors.  If you know where to look and what questions to ask, the remuneration report can provide fascinating and often overlooked insights into the way decisions are made, capital is allocated and wealth is created (or destroyed) within a listed company.

Wealth = Quality x Quantity Part 4: Competition can be hazardous to wealth

‘The production of wealth,’ as 19th century philosopher John Stuart Mill observed, ‘has its necessary conditions’.

For senior executives and directors charged with growing the wealth of shareholders, few things could be more important to understand than the ‘necessary conditions’ for the production of wealth.

In this series of articles, we’ll share the findings of our research into wealth creation in Australian equity capital markets and layout a clear framework that describes the necessary conditions for the production of wealth.

In this article, we’ll look at impact competition has on returns on capital employed and Wealth Creation.

A quick recap
In the first article in this series, we looked at the findings of our research into why some companies create wealth, while others destroy it.

We showed that the creation of wealth is a function of ‘Quality’ and ‘Quantity’. ‘Quality’ is the rate of return that the company is able to generate on the capital entrusted to it, calculated by its sustained (say 5 year average) Economic Profit Spread ie its Return on Capital Employed (ROCE) less its Weighted Average Cost of Capital (WACC). ‘Quantity’ is the amount of capital that a company can put and is the great magnifier of Quality.

In the second article we argued that it is actually expectations of ‘Quality’ and ‘Quantity’ that are the key determinants of wealth creation, but that for most businesses, the history of the business is a good guide to the future and hence Quality and Quantity expectations.

In the third article we looked at the macro picture and showed that the top quartile of Wealth Creators combined both Quality and Quantity.  The second quartile had Quality without Quantity, the third quartile had low Quality and Quantity and the bottom quartile, those that destroyed wealth combined low quality with large quantities of capital.

Competition can be hazardous to wealth
Why are some businesses able to achieve and sustain high returns on the funds entrusted to them and create wealth while others languish with low returns?

High returns on capital are a rare achievement – just 26 of the 200 businesses we studied enjoyed average returns 10% or more above the cost of capital over the five years to 30 June 2013.

Like most of the businesses in our set, these businesses are professionally managed, offer compelling value propositions to their customers and play their part in the communities in which they operate.

The difference is the competition that they face.

For most businesses, the competition for sales, supplies or employees forces returns down to a level that just compensates investors for the risk that they take on. A short period of high returns attracts the attention of competitors and in the absence of a hard to replicate product or cost advantage, returns fall away as new players enter the market.

But a small group of businesses has been able to avoid these pressures and maintain high returns. Some, like Cochlear (#27) invest hundreds of millions in research and development and enjoy the protection of patents, allowing them to reduce competition over the life of the patent. Others, like BHP Billiton (#1) enjoy cost advantages over their competitors and pricing power in some of their businesses, while others like Reece Australia (#40) leverage brand recognition and distribution networks.

In each of these instances, the advantages have proven durable, giving investors confidence that high returns can be maintained well into the future, even in the face of competitive pressures. When these advantages can be maintained, wealth will be created, limited only by the size of the capital investment opportunity.

Key takeaway
The production of wealth has its necessary conditions. For many businesses this can be simplified into the concepts of ‘Quality’ and ‘Quantity’. Boards and senior managers can help their business create more wealth for shareholders by focusing attention on these two simple drivers and ensuring all strategic, as well as day-to-day decisions are made with this in mind.

More on how businesses can be engineered to create wealth can be found here.

Wealth = Quality x Quantity Part 3: The macro picture

‘The production of wealth,’ as 19th century philosopher John Stuart Mill observed, ‘has its necessary conditions’.

For senior executives and directors charged with growing the wealth of shareholders, few things could be more important to understand than the ‘necessary conditions’ for the production of wealth.

In this series of articles, we’ll share the findings of our research into wealth creation in Australian equity capital markets and layout a clear framework that describes the necessary conditions for the production of wealth.

In this article, we’ll look at the macro picture and how Economic Profitability links to Wealth Creation.

A quick recap
In the first article in this series, we looked at the findings of our research into why some companies create wealth, while others destroy it.

We showed that the creation of wealth is a function of ‘Quality’ and ‘Quantity’. ‘Quality’ is the rate of return that the company is able to generate on the capital entrusted to it, calculated by its sustained (say 5 year average) Economic Profit Spread ie its Return on Capital Employed (ROCE) less its Weighted Average Cost of Capital (WACC). ‘Quantity’ is the amount of capital that a company can put and is the great magnifier of Quality.

In the second article we argued that it is actually expectations of ‘Quality’ and ‘Quantity’ that are the key determinants of wealth creation, but that for most businesses, the history of the business is a good guide to the future and hence Quality and Quantity expectations.

The macro picture
Grouping the two hundred businesses in our research set into four quartiles further reinforces
the importance of quality and quantity to wealth creation.

Figure 1: Cumulative Wealth Created by Quartile

table

The total wealth created by the top 25% of businesses we analysed was $488 billion, more than 18 times as much as the next quadrant. These businesses fit the description given by Warren Buffett in his 1992 letter to fellow Berkshire Hathaway investors as the best businesses to own:

‘Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.’

That is, they invest large amounts of capital at high rates of return.

Indeed by 30 June 2013, the top quartile, including the likes of BHP Billiton, Commonwealth Bank, Telstra, CSL and Woolworths, had invested $678 billion – nearly three times as much as the other quadrants put together – at the highest average returns, 3.8% above what investors could expect to earn elsewhere at comparable risk.

The second quartile created a very credible $27 billion of wealth. Their average returns were close to those in the first quartile (2.6% above the cost of capital, versus 3.8% enjoyed by the first quadrant), but these businesses, including the likes of software developed IRESS Limited (#61) and retailer, Oroton Group (#96), were not able to put large amounts of capital to work at those rates (just $62 billion in total at 30 June 2013). With the accelerator of wealth creation missing, the second quadrant created a fraction of the wealth of the first.

The third quartile created $2.5 billion of wealth. This group has averaged returns over the past five years just above what investors could expect to earn elsewhere (their median Economic Profit Spread being 0.8%). Capital invested at 30 June is the lowest of the four quartiles at just $29 billion. With quality just above average and low quantity, this quadrant has done well to amass even $2.5 billion of wealth.

The bottom quartile has destroyed $55 billion of wealth by putting large amounts of capital to work ($158 billion by 30 June 2013) at low rates of return, averaging 3% below what investors could expect to earn elsewhere. Little wonder Buffett described these kind of businesses as the worst to own.

This quartile analysis shows the strong link between quality, quantity and wealth. The top 25% of wealth creators were also the businesses with the highest quality or EP spreads and the highest quantity of capital invested. The next 25% had good EP spreads, but less invested. The third quartile had breakeven EP spreads and the smallest amounts invested and the bottom 25% destroyed $55 billion of wealth by investing the second highest amount of capital at the lowest rates of return.

But where does accounting profit sit in all this? Given the emphasis placed on accounting profits by investment banks, the media and stock brokers, many managers would be forgiven for assuming measures like EPS, Net Profit and EBITDA are reliable indicators of wealth creation: more profit is always good for shareholders.

This is not borne out by our analysis. In fact accounting profit was shown to be a very misleading measure: while the top 25% of wealth creators also made more Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) than any other quartile, the bottom quartile, who destroyed $55 billion of wealth, came second in terms of cumulative EBITDA over the five years to 30 June 2013.

The problem is accounting profit measures like EPS, Net Profit and EBITDA say nothing about the quality of the business. They do not take into account the return investors could earn elsewhere on their funds and so businesses that employ large amounts of money at low rates of return can grow their accounting profits handsomely, all the while destroying wealth for investors.

For anyone interested in wealth creation, the evidence is compelling: wealth is not a function of accounting profitability. Wealth = Quality x Quantity.

The link to Economic Profit
There is a measure of financial performance that neatly captures both quality and quantity: Economic Profit, or as it sometime referred to, Economic Value Added.

Figure 2: Economic Profit captures the key drivers of wealth creation

Economic Profit formula

In the final article in this series we’ll explore why some companies earn higher returns on their capital than others and the hazardous impact that competition can have on wealth.

Wealth = Quality x Quantity Part 2: investor expectations

‘The production of wealth,’ as 19th century philosopher John Stuart Mill observed, ‘has its necessary conditions’.

For senior executives and directors charged with growing the wealth of shareholders, few things could be more important to understand than the ‘necessary conditions’ for the production of wealth.

In this series of articles, we’ll share the findings of our research into wealth creation in Australian equity capital markets and layout a clear framework that describes the necessary conditions for the production of wealth.

In this article, we’ll look at the importance of investor expectations to wealth creation.

A quick recap
In the first article in this series, we looked at the findings of our research into why some companies create wealth, while others destroy it.  We showed that the creation of wealth is a function of ‘Quality’ and ‘Quantity’.  ‘Quality’ is the rate of return that the company is able to generate on the capital entrusted to it, calculated by its sustained (say 5 year average) Economic Profit Spread ie its Return on Capital Employed (ROCE) less its Weighted Average Cost of Capital (WACC).

‘Quantity’ is the amount of capital that a company can put and is the great magnifier of Quality.

BHP Billiton, the business that created more wealth than any other in our analysis, best exemplifies the impact of combining Quality and Quantity, not only enjoying a median return on capital employed 10% above the return required for risk over the past five years, but also employing an average of $83 billion a year at those rates, creating nearly $39 billion more profits than investors would have required for the risk associated with their investment.

But quantity can also magnify poor quality.  Newcrest Mining Limited is a good example of this. Over the past five years Newcrest suffered returns on average 2.3% below what investors required for risk. At the same time, it expanded its capital base, investing billions at low rates of return. The result was a market valuation $10.6 billion less than what investors had poured into the business as at 30 June 2013.

The final ingredient: expectations
To complete the analysis of what creates wealth, we need to bring in expectations. Ultimately it is expectations of quality and quantity that drive the creation of wealth.

If a company is expected to generate high returns on capital and employ large amounts of money doing so, the value of the company will be bid up well above the amount originally contributed by investors and wealth will be created.

But the reverse is also true. If a company is expected to invest at low rates of return its value will fall and, absent of a takeover premium, it will trade at a discount to the book value of capital employed.

Our research found that the valuation that companies trade at is a function of expectations of the quality of future returns and the quantity of funds likely to be employed at those rates. But because the future is unknowable, with a few exceptions (like oil and gas exploration and development business Oil Search Limited (#14)), in forecasting the future quality of a business and the quantity of funds it will be able to put to work, investors tend to put great store in historical performance, meaning wealth often reflects historical performance, particularly for established businesses.

For example, Cochlear (#27) had created $2.9 billion of wealth as at 30 June 2013 and an average return above that required for risk over the five years to 30 June 2013 of 14%. Unpacking Cochlear’s valuation into quality and quantity expectations shows that investors were expecting the Group to continue to enjoy returns significantly above the cost of capital even as it grows invested capital well into the future.

Contrast this with Qantas (#196), who by 30 June 2013 had destroyed $3.5 billion with an average return 3.5% below that required for risk over the past five years. Unpacking Qantas’ 30 June valuation shows that investors were expecting returns to stay well below the cost of capital no matter what growth scenario is envisaged.

In the next article we return to the themes of Quality and Quantity, examining the link between wealth created and Economic Profitability.

Wealth = Quality x Quantity Part 1: Our findings

‘The production of wealth,’ as 19th century philosopher John Stuart Mill observed, ‘has its necessary conditions’.

For senior executives and directors charged with growing the wealth of shareholders, few things could be more important to understand than the ‘necessary conditions’ for the production of wealth.

In this series of articles, we’ll share the findings of our research into wealth creation in Australian equity capital markets and layout a clear framework that describes the necessary conditions for the production of wealth.

In this article, we’ll look at the basis of our research and present the findings of our research which highlights the importance of quality and quantity.

The basis of our research
So what are the ‘necessary conditions’ for creating wealth? We set out to answer this
question by looking at a group of Australia’s largest listed companies and asking who has
created (or destroyed) wealth and then digging deeper to find the root causes [1].

We used a simple definition of wealth creation being the difference between how much has
been invested in a company and how much it is worth as at 30 June 2013. This measure has
the advantage of being a dollar measure of wealth, as opposed to a percentage measure,
like Total Shareholder Return or TSR and hence shows the true impact the business has had
on the economy.

The Wealth Created results are summarised in the tables following, ranking the two hundred
businesses in our set by Wealth Created as at 30 June 2013 and show, for example that BHP
Billiton (ranked #1 in the table) at 30 June 2013 had taken $137 billion of capital from
shareholders and lenders and turned it into a business worth $208 billion, creating a
staggering $71 billion of wealth [2].

Figure 1: The 2013 Juno Partners Wealth Creators Report

 

1-5051-100101-150151-200

By contrast, Newcrest Mining (#200) had taken $22.4 billion and turned it into $11.8 billion,
destroying $10.6 billion.

How do businesses create wealth?
How does a business like BHP Billiton create $71 billion of wealth? If you were to believe the prospectuses, annual reports and investor briefings issued by many of our listed companies, you would be left with the firm impression that what matters in creating wealth is EPS growth and EBITDA.

But our research shows that is not the case.

In fact, these metrics are unreliable at best and dangerously misleading at worst. Managers that navigate with these measures risk running their businesses off course and destroying wealth.

Our analysis shows that wealth creation is also not a function of sector. For example, some miners performed well, but some destroyed billions.

Wealth is also not just a matter of size. BHP Billiton is a very large company and created the most wealth, but Qantas (#196) is also a very large business, but its size did not save it from destroying billions.

Even growth per se does not matter. Both OZ Minerals (#198) and Westpac (#4) have grown their balance sheets in excess of 20% compound over the five years to 30 June 2013 but by the end of it, Westpac had turned $51 billion of investors’ funds into a business worth $90 billion, creating $39 billion, while OZ Minerals, turned $6.2 billion into just $1.3 billion, destroying $4.9 billion.

Instead, our research shows that the two most important conditions necessary for the creation of wealth can be characterized as ‘quality’ and ‘quantity’.

The importance of quality
Let’s look at the first condition: quality. The quality of a business is captured by the returns the business is expected to generate above what investors could expect to enjoy elsewhere at similar risk. We call this the company’s Economic Profit spread, or EP spread for short (for further detail on terminology, see our glossary of terms).

In assessing quality, we tend to give most emphasis to the EP spread the business has made over five years. This five year time frame helps iron out year-to-year fluctuations and gives a picture of sustained performance.

It shows, for example, the highest quality business in our set is Wotif.com Holdings Ltd (#57), which over the past five years has enjoyed an average return on capital employed of 56.5%, 45.5% above the rate investors could have expected to earn elsewhere at similar risk.

Intuitively, generating 45% more than the return required for risk is good performance, but when you consider a little under three quarters of the businesses covered in our research failed to generate more than 5% above what investors could expect for risk, then you begin to appreciate what are rare jewel Wotif.com is.

Quantity: the great accelerator of wealth creation
The second condition necessary for the creation of wealth is quantity, in this case the quantity of funds that can be invested at high rates of return. The more capital that can be put to work at high rates of return, the more wealth will be created.

This is best exemplified by BHP Billiton (#1) who not only enjoyed a median return on capital employed 10% above the return required for risk over the past five years, but also was able to employ an average of $83 billion a year at those rates, creating nearly $39 billion more profits than investors would require for the risk associated with their investment.

Quantity is the great accelerator of wealth creation. As good as Wotif.com’s returns are, the service nature of its business means that it does not organically generate large capital investment opportunities. It is hard to see how Wotif.com could ever employ $83 billion of capital in their business. Ultimately this restricts the wealth the business is able to generate.

But quantity without quality is a recipe for wealth destruction
But while the ability to put capital to work is important, we found quality must always come first. Investing large amounts of capital in low return, low quality businesses is a recipe for wealth destruction.

Newcrest Mining Limited (#200) is a good example of this. Over the past five years Newcrest suffered returns on average 2.3% below what investors required for risk. At the same time, it expanded its capital base, investing billions at low rates of return. The result was a valuation $10.6 billion less than what investors had poured into the business as at 30 June 2013.

Warren Buffett put it this way in his 1992 letter to fellow Berkshire Hathaway investors:

‘Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.’

In the next article we’ll discuss our findings regarding the importance of expectations.

______________________________________

[1] For the purposes of this study, our database comprised the 200 largest Australian domiciled public companies as at 30 June 2013, excluding investment businesses, such as listed investment companies, insurance and real estate businesses, those with less than five years of publicly available financial reports and those who made losses in three or more of the past five years.

[2] Note that in the table of data we list the 2013 average Capital Employed balance, being the average of the year-end results for 2012 and 2013. The 2013 year-end values cited in the main text of this article and used to calculate Wealth Created, will usually be a little larger.

 

Wealth = Quality x Quantity

‘The production of wealth,’ as 19th century philosopher John Stuart Mill observed, ‘has its necessary conditions’. New research by Juno Partners, summarised in this series of articles, reveals that for companies, the two necessary conditions can succinctly be described as ‘quality’ and ‘quantity’.

Most senior managers today would agree that the job of a corporation is to create wealth. In our capitalist, democratic society, we create different institutions for different purposes. We create charities to fund good causes, governments to set and enforce laws and businesses to create wealth.

When they focus on the creation of sustained gains in wealth, businesses provide the lifeblood of our economy. When businesses forget about wealth creation or the importance of the long term, the economy and all our institutions suffer.

For senior executives therefore, and directors in particular, few things could be more important to understand than the ‘necessary conditions’ for the production of wealth.

In this series of articles, we’ll share the findings of our research into wealth creation in Australian equity capital markets and layout a clear framework that describes the necessary conditions for the production of wealth.

In the first article, we’ll look at the basis of our research and present the findings of our research which highlights the importance of quality and quantity.

The second article looks at the importance of investor expectations to wealth creation.

The third article then returns to the themes of quality and quantity, examining the link between wealth created and Economic Profitability.

The forth article discusses the hazardous impact that competition can have on wealth.

Key takeaway
The production of wealth has its necessary conditions. Boards and senior managers play a critical role in guiding that production, but only if they understand the importance of quality and quantity and ensure every aspect of their business is managed with them in mind.

A pdf version of this series is available here:

Juno Partners Wealth = Quality x Quantity 2012