Always quoteworthy, Warren Buffett once said: ‘I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.’

While the maxim has merit, management does make a difference and management changes can have a major impact – for good or bad – on even the best businesses.

The surprise departure of Unilever (ULVR) chief executive Hein Schumacher on 25 February after a little more than 18 months in charge certainly shook market confidence in the consumer goods giant.

Which is not to say his successor, Fernando Fernandez, who is stepping up from his role as finance director, won’t do a good job, but it injects a dose of uncertainty into the company’s future strategy, particularly given Schumacher’s departure was completely out of the blue and with immediate effect.

Wholesale changes seem unlikely: the spin-off of the ice cream unit is well advanced, but Fernandez may have his own views on how to proceed, and as an internal candidate he probably has less leeway to follow the regular playbook of taking a kitchen sink to the numbers and attempting to reset expectations.

The recent departure of chief executive Gavin Isaacs after just five months in charge prompted an even more dramatic fall in the share price of Ladbrokes-owner Entain (ENT).

The subsequent departure of other key executives, as clouds loom over the company thanks to legal action against it by Australia’s financial intelligence agency, has only added to the sense of unease.

A change at the top is often the first step in a company’s recovery, but an incumbent boss can also respond to external pressure, which may come in the form of a downturn in trading caused by the waxing and waning of the economy, some significant external event or the arrival on the share register of an activist investor.

The role of activists is often to shake management teams out of their complacency. For example, Deepak Nath, the boss of medical devices group Smith & Nephew (SN.), was up against it heading into 2025.

Swedish activist Cevian Capital was in the wings calling for change to address several years of share price and financial underperformance, but a strong set of 2024 results (25 February) accompanied by a robust outlook for the current year could convince investors to stick with Nath’s recovery plan for now.  

Two articles in this week’s magazine explore the power of compounding – one in a very specific example at Assura (AGR) and the other looking at the wider benefits within an ISA.

In our view, investors cannot be reminded enough of the benefits of something Albert Einstein once described as the ‘eighth wonder of the world’ such is the impact it can have on your overall returns.

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