An empty suit is generally defined as an executive, manager or official regarded as ineffectual, incompetent, or lacking in leadership qualities such as creativity and empathy.
Companies can also be empty suits if they lack a clearly defined purpose or a viable business model. Just as judging a potential employee’s potential is difficult, and prone to error, assessing a business proposal is also challenging.
Two relatively new developments affecting investors’ ability to assess businesses potential are gamification (see our blog of November 5, 2021 “Gamification”), and the Special-Purpose Acquisition Company (SPAC).
Gamification encourages traders to make investment decisions based on factors other than a careful evaluation of a company’s fundamental economic opportunities.
SPACs, also known as blank check companies, are shell corporations, listed on a stock exchange, with the purpose of acquiring a private company, often with only limited public information. A SPAC, before the completion of the acquisition and after effective due diligence, can be likened to “buying a pig in a poke” or an empty suit.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA