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LONDON -- Management can make all the difference to a company's success and thus its share price.
To me at least, 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. On the other hand, 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 HSBC (LSE: HSBA.L ) , yet another FTSE 100 company mired in controversy.
|Stuart Gulliver||Chief Executive|
|Iain MacKay||Finance Director|
HSBC's board has three executive directors (including an executive chairman) and 14 non-execs.
A former accountant, Douglas Flint joined HSBC as finance director in 1995 and was elevated to Chairman in 2010 when Stephen Green stepped down to become Trade Minister in the coalition government. That was something of a deviation from HSBC's tradition of bumping its CEOs up to Chairman.
Flint was seen as a safer pair of hands than former CEO Mike Geoghegan. Made a CBE in 2006 for his services to the finance industry, he has served on several high-level reviews and is a guru on the subject of bank regulation. Previously a non-exec of BP for six years, he is tipped as an outside candidate to be the next Bank of England Governor.
Stuart Gulliver's appointment as CEO coincided with Douglas Flint's appointment. A career HSBC banker, he has worked mostly in investment banking, latterly head of that division. His success at building HSBC's Asian markets business, strong Asian connections, and deft avoidance of losses in the investment banking division in the 2008 financial crisis, are said to have been major factors in his appointment.
Replacing Douglas Flint as FD in 2010, Iain MacKay is a career accountant who joined HSBC in 2007.
The non-execs include Sandy Flockhart, a career HSBC banker who is retiring at the end of the month to fight cancer. The other non-execs are independent, and cover a broad spectrum of geographical and sectoral experience.
I analyze management teams from five different angles to produce an overall verdict. Here's my assessment:
|1. Reputation. Management CVs and track record: Prestigious chairman, experienced CEO.||Score 4/5|
|2. Performance. Success at the company: Execs in top posts only since 2010.||Score 3/5|
|3. Board Composition. Skills, experience, balance: Good skills, but insiders have the top jobs.||Score 2/5|
|4. Remuneration. Fairness of pay, link to performance: 10% vote against remuneration report.||Score 3/5|
|5. Directors' Holdings, compared to their pay: Gulliver has 26 million pounds of shares, other directors substantial.||Score 4/5|
Overall, HSBC gets 16 out of 25, a respectable score.
Flint and Gulliver have (so far) avoided calls for their resignations over the bank's U.S. money laundering offences. Arguably, the extent of the failures is a result of HSBC's strong managerial culture which favors recruitment from within. It builds a cadre of like-minded and loyal executives, but not one that is very open to external scrutiny.
However several of the U.K.'s struggling banks could envy HSBC's top team.
Buffett's favorite FTSE share
Let me finish by adding that legendary investor Warren Buffett has always looked for impressive management teams when pinpointing which shares to buy. So I think it's important to tell you that the billionaire stock picker has recently acquired a substantial stake in a prominent FTSE 100 company.
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