The Men Who Run Fresnillo

LONDON -- Management can make all the difference to a company's success and thus its share price.

The best companies are those run by talented and experienced leaders with strong vested interests in the success of the business, held in check by a board with sound financial and business acumen. Some of the worst investments to hold are those run by executives collecting fat rewards as the underlying business goes to pot.

In this series, I'm assessing the boardrooms of companies within the FTSE 100. I hope to separate the management teams that are worth following from those that are not. Today I am looking at Fresnillo  (LSE: FRES  ) , the Mexican miner that is the world's largest primary producer of silver.

Here are the key directors:

Director

Position

Alberto Baillères

(non-exec) Chairman

Octavio Alvidréz

Chief Executive

The FTSE's strangest board
Fresnillo is a candidate for the strangest board in the FTSE 100. It was carved out of its parent Industrias Peñoles when 23% was floated on the LSE. Peñoles still owns 77% and it provides services to Fresnillo, governed by a relationship agreement. With more than 75% of the shares Peñoles can enforce special resolutions and so controls Fresnillo, though the relationship agreement ties its hands somewhat.

Peñoles is owned by the Baillères family, and Alberto Baillères is its controlling shareholder. So the non-executive chairman of Fresnillo is, in effect, its owner.

Apart from Peñoles, a mining group, the Baillères family interests include department stores, insurance and banking. Baillères is Mexico's third richest man and 38th richest in the world, according to Forbes. He has been on the board Peñoles since the family acquired its interest in 1962, and its chairman since 1967.

Fresnillo has just one executive director. Octavio Alvidréz has only been in post since last August. His predecessor Jaime Lomelín remains as a non-exec. Lomelín spent 36 years in the Peñoles group, retiring from the top job at Fresnillo at the age of 77.

Jack of all trades
Alvidréz is himself a Peñoles veteran. He has been with the group for 20 years, in operational and financial positions. He has a degree in mining engineering and an MBA from Wharton, and was general manager of Mexico's largest underground mine prior to his current position. Yet he has also been Peñoles' corporate treasurer and he coordinated Fresnillo's flotation, subsequently acting as its head of investor relations.

Under Alvidréz is an executive committee with a CFO and a vice president of exploration. Until last October there was also a chief operating officer, but on his retirement the multi-talented Alvidréz took over his responsibilities.

From a governance perspective there is a world of difference between a finance director, who has a fiduciary duty to shareholders, and a chief financial officer who is an employee and responsible to his boss.

There are five representatives of Peñoles on Fresnillo's 12-strong board, not including the former CEO.

I analyze management teams from five different angles to help work out a verdict. Here's my assessment:

1. Reputation. Management CVs and track record.

Good.

Score 4/5

2. Performance. Success at the company.

Good long term, faltering recently under new CEO.

Score 3/5

3. Board Composition. Skills, experience, balance

See above.

Score 0/5

4. Remuneration. Fairness of pay, link to performance.

Uncontroversial.

Score 3/5

5. Directors' Holdings, compared to their pay.

CEO and former CEO have no shares.

Score 1/5

Overall, Fresnillo scores 11 out of 25, a poor result. Generally family ownership is a good thing but 77% control, a non-independent chairman, a one-man band new CEO and no FD add up to a poor deal for minority shareholders.

I've collated all my FTSE 100 boardroom verdicts on this summary page.

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