The Men Who Run Severn Trent

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 Severn Trent  (LSE: SVT  ) , one of just three listed U.K. water utilities.

Here are the key directors:

Director

Position

Andrew Duff

(non-exec) Chairman

Tony Wray

Chief Executive

Michael McKeon

Finance Director

Tony Balance

Director, Strategy & Regulation

Martin Kane

CEO, Severn Trent Services

Andy Smith

Director of Water Services

For one of the FTSE 100's smaller companies Severn Trent has a big board, with five executives and six non-execs including chairman Andrew Duff.

In post since 2010, Mr Duff is familiar with regulated utilities. After 16 years with BP he joined National Power in 1998 and on its sale to German power company RWE he served as CEO of RWE npower for eight years. At that time the company owned Thames Water.

Stepping down
Tony Wray, CEO since 2007, recently announced plans to step down in spring 2014, after the next five-year plan is agreed with industry regulator Ofwat.

His earlier career was spent in the gas and electricity industries where he was involved in their privatization and restructuring. He joined Severn Trent at a time when its reputation was tarnished: it had been investigated by the Serious Fraud Office and fined over misreporting data to the regulator.

Wray has restored the company's image, and improved its operational performance. During his tenure Severn Trent's shares have risen by 30%, significantly more than its peers United Utilities (up 7%) and Pennon (up 12%).

He has been a vocal figure in the industry, calling for more consolidation, more competition, and the introduction of water trading.

Bonds
A chartered accountant, Michael McKeon has been finance director since 2005, joining after the mis-reporting offences were committed. His finance career includes spells with Rolls-Royce. Last year Severn Trent was the first water company to market an inflation-linked bond to retail investors.

The three divisional directors were appointed to the board at the time of Tony Wray's elevation to CEO. Tony Ballance is a former chief economist for Ofwat, Martin Kane a longtime Severn Trent employee, while Andy Smith has a background in HR.

Severn Trent five non-execs look impressive for a company of its size, including Baroness Noakes, former shadow treasury minister, and a former chief scientist for BP.

Amber top
The ABI issued an "amber-top alert" over the company's remuneration report in 2011, after it adjusted performance targets to enable executives to receive bonuses. Pirc advised shareholders to reject the 2012 remuneration report, mainly over excessive termination payments.

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 3/5

2. Performance. Success at the company.

Strong.

Score 3/5

3. Board Composition. Skills, experience, balance

Impressive.

Score 4/5

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

Controversial.

Score 2/5

5. Directors' Holdings, compared to their pay.

CEO and FD have less than a year's salary-worth.

Score 2/5

Overall, Severn Trent scores 14 out of 25, a poor result. An impressive-looking board and decent operational performance doesn't make up for the whiff of being self-serving.

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

Buffett's favorite FTSE share
Legendary investor Warren Buffett has always looked for impressive management teams when picking stocks. His latest acquisition, Heinz, has long had a reputation for strong management. Indeed Buffett praised its "excellent management" alongside its high quality products and continuous innovation.

So I think it's important to tell you about the FTSE 100 company in which the billionaire stock-picker has a substantial stake. A special free report from The Motley Fool -- "The One U.K. Share Warren Buffett Loves" -- explains Buffett's purchase and investing logic in full.

And Buffett, don't forget, rarely invests outside his native United States, which to my mind makes this British blue chip -- and its management -- all the more attractive. So why not download the report today? It's totally free and comes with no further obligation.

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10/21/2014 11:44 AM
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