Investment Insider: Is it clever to play follow the leader?

Sometimes a business, and not its boss, is where the value lies
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The Independent Online

Dame Marjorie Scardino transformed Pearson from a sprawling business that had its finger in an unconnected selection of pies.

It was involved in investment banking, tourism, television and printing. But during her reign, Dame Marjorie shifted the company's focus to publication and education through brands that include the Financial Times, The Economist and Penguin books.

In the 15 years that Dame Marjorie was in charge, sales had tripled to nearly £6bn and profits had grown more than threefold.

Over that period, shareholders were rewarded with a total return of more than 200 per cent. In other words, it delivered an average return of around 7 per cent a year over a decade and a half. Since her departure, the shares have continued to deliver similar returns – almost as though nothing has changed. Yet Dame Marjorie and her like are lauded, and their departure can cause a nervous intake of breath from investors.

Apple is an interesting business, whose flagging fortunes were spectacularly revived when co-founder Steve Jobs returned to the company after a 12-year absence. During his 14-year stint, he turned a company that had been on the brink of bankruptcy to one of the most successful high-technology businesses in the world.

Shareholders enjoyed an annualised return of 34 per cent on their investment. Since Mr Jobs's untimely death the returns, while still impressive, have fallen back to around 21 per cent.

Apple recently poached the boss of Burberry, Angela Ahrendts, to head its retail operation from the middle of next year. Ms Ahrendts is credited with building Burberry's image into a global brand.

During her time at Burberry, shareholders have enjoyed a return of around 20 per cent a year for seven year. She will be succeeded by Christopher Bailey, who is reckoned to be as creative as Ms Ahrendts was astute.

Another head honcho on the move is Lance Batchelor, who will be swapping pizzas for pensions. News of his departure from Dominos to join Saga sent shares in the pizza-delivery outfit down by as much as 10 per cent.

It is not just the departure of company bosses that can effect a business. The recent announcement that fund manager Neil Woodford would be leaving Invesco Perpetual prompted some investors to withdraw their money. It is reckoned that assets under management have shrunk by about 4 per cent.

It is unclear whether the departure of key personnel can hit performance. Warren Buffett once quipped that we should buy shares in businesses that are so wonderful an idiot can run them, because sooner or later, one will.

David Kuo is director of

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