Part 1 – Management and Culture
Often overlooked in stock analysis is the importance of a company’s management team, the corporate culture, and the components of good governance. In this first installment, we will discuss why it’s important to know who is leading the company and setting the culture at the top of an organization.
Evaluating a company’s senior management team should be a key component of analyzing any potential investment opportunity. It might seem obvious, but it’s hard to overstate the impact a chief executive officer (CEO) has on an organization. Senior leaders set culture and, at the risk of being cliché, corporate culture matters. Consider the following case as an example:
In 2015, Kraft Foods and The H. J. Heinz Company (“Heinz”) merged in a $45 billion transaction to create The Kraft Heinz Company (KHC). By way of background, Heinz had been taken private in 2013 by Berkshire Hathaway (BRKA) and the Brazilian private equity firm 3G Capital. When the merger of Heinz and Kraft Foods was first announced, management promised massive synergy potential of $1.5 billion in cost savings by 2017. To many investors familiar with 3G Capital’s “zero-based budgeting” approach, this seemed well within reach, given the synergies delivered by previous 3G-backed deals such as InBev / Anheuser-Busch and Burger King / Tim Hortons. Fast forward to 2019, the company had over-delivered on its cost savings goals and operating margins had expanded to best-in-class levels among big food peers.
This might all sound good on the surface, but the hyper fixation on margin expansion and the relentless focus on cost cutting poisoned the internal culture and stifled innovation. The company shuttered factories and laid off thousands of employees. Those who remained were expected to work longer hours with fewer resources and support. The failure to invest appropriately in marketing and R&D left the company with a portfolio of products that was largely out-of-favor with a consumer that was becoming increasingly more health conscious. Problematically, revenue wasn’t growing and brand equities across the portfolio were deteriorating.
Fast forward to February 2019, Kraft Heinz took a $15.4 billion impairment on the Kraft and Oscar Mayer brands, cut the dividend by 36%, and announced an SEC investigation into its accounting practices. The stock fell 30% on the announcement. CEO Bernardo Hees, a partner at3G Capital at the time, later resigned in June 2019. Today, a decade after the merger, Kraft Heinz has lost nearly 75% of its equity value since the all-time high in February 2017 and the company recently announced its intention to split into two separate public entities by the second half of 2026.
There are many lessons to be learned from Kraft Heinz. Culture is almost always set at the top, but it can be difficult to quantify. The CEO and senior managers influence everything from how the company allocates capital and resources, to how it manages risk, to how it implements internal controls, to how employees are treated, and more. While a strong culture does not guarantee strong performance or outsized investment returns, it can provide a foundation for the sustainability of solid financial results that drive valuation.
For investors, evaluating management is about assessing the experience, character, judgment, and culture-setting ability of the people at the top.
The résumé of a CEO or other executive officers can provide valuable insights into the roles they have held, the industries in which they have worked, and the progression of their responsibilities over time. Leaders who have demonstrated steady advancement, relevant experience, and a pattern of success in prior positions are generally better poised to manage the challenges of their current role. Just as telling are the reputations they carry whether as innovators, visionaries, disciplined cost-cutters, turnaround specialists, or empire builders. All of these can help guide the investor’s view of management and whether it’s a team worthy of your investment.
Strong management teams communicate with transparency and consistency, setting measurable goals and clear expectations for investors. Companies that provide achievable financial guidance, then execute on it, tend to earn long-term investor confidence. By contrast, a pattern of ignoring realities and repeated misses against self-imposed targets erodes trust, which is difficult to regain and can weigh on a stock for years. Executives must be accountable for failures, not just take credit for wins. In fact, a simple “mea culpa” goes a long way to build investor trust.
Recognize and take caution when companies blame external factors for deficient performance without acknowledging internal missteps. At Kraft Heinz, former CEO Hees regularly cited “changing consumer trends” but failed to address the company’s decision to cut marketing and R&D spend to unsustainable levels well below what peers were spending. The decision to prioritize margin expansion over investments in brand building, innovation, and demand generation left the company unable to adapt to the shifting trends.
While prepared remarks on earnings calls or investor conferences are typically polished by investor relations teams, unscripted settings such as Q&A sessions or interviews can often be more revealing. The way executives speak to analysts, reporters, and investors can provide telling insights into how they drive culture and how they inspire buy-in through the organization and beyond. Investors should listen carefully to tone and style: Are executives candid or evasive? Do they acknowledge challenges realistically or gloss over them with dismissive optimism? Fewthings erode confidence (and frankly irritate investors) more than a CEO who constantly plays cheerleader. Managers who are transparent and accountable tend to build trust with investors, and trust often justifies relative valuation premiums.
In conclusion, it’s fair to say that a company’s earnings are the primary measure of a CEO’s effectiveness. Earnings drive stock valuation, inform how the C-suite is evaluated by the Board and investors, and weigh heavily on executive compensation. The culture of an organization can be a leading indicator of the durability of good financial results. As the Kraft Heinz example demonstrates, even companies with established brands and decent earnings can falter if leadership makes short-sighted decisions that compromise culture.
A company’s culture should guide the corporate strategy, not the other way around. In the case of Kraft Heinz, strategy dictated culture to disastrous ends. As a shareholder or potential investor, understanding how strategy and culture interact is critical. Evaluating who the people are at the top of the organization and how they make decisions should be a key element of any investor’s analysis and diligence process.
Clay Crumbliss, CFA
09/17/2025
About the Author
Clay Crumbliss, CFA is a portfolio manager and research analyst with Barnett & Company, based in Chattanooga, TN Clay spent a decade working as an institutional equity research analyst at Credit Suisse and Guggenheim Securities in New York, NY Prior to Barnett & Co., he advised management teams on investor relations and pre-IPO strategy. He began his career in investment banking and mergers & acquisitions.
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