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 recent weeks, I've been assessing the boardrooms of companies within the FTSE 100: AstraZeneca
Five FTSE boardrooms
I analyze management teams from five different angles, giving each a score out of five. Here's my overall assessment:
|
Company |
Reputation |
Performance |
Shareholdings |
|---|---|---|---|
|
Petrofac |
4 |
5 |
4 |
|
BATS |
3 |
4 |
4 |
|
Standard Chartered |
3 |
4 |
3 |
|
AstraZeneca |
3 |
3 |
3 |
|
RBS |
3 |
2 |
0 |
|
Company |
Composition |
Remuneration |
Overall Score |
|---|---|---|---|
|
Petrofac |
3 |
4 |
20 |
|
BATS |
3 |
3 |
17 |
|
Standard Chartered |
3 |
3 |
16 |
|
AstraZeneca |
3 |
2 |
14 |
|
RBS |
3 |
2 |
10 |
Petrofac storms into the lead with 20 out of a possible 25 -- the highest-scoring boardroom I've analyzed so far. The strong executive team is led by two entrepreneurs who have built a 5 billion pound company from virtually nothing, and their success demonstrates the truth of the adage that the proof of the pudding is in the eating. They pay themselves modestly but have massive investments in the company. My only reservation concerns future management succession.
At the very opposite end of the scale is RBS, where progress in turning around the bank has been relatively slow. But more tellingly, only CEO Stephen Hester has any significant investment in shares, and even his 1 million pound stake worth is small beer compared to his remuneration. The general lack of faith the board have in their own shares is in marked contrast to the efforts they have displayed defending management bonuses.
BAT has a very respectable score. Surprisingly, a banking controversy holds it back: Chairman Richard Burrows was chairman of the Bank of Ireland when it collapsed. But it would be hard to fault the performance of the executive team, who all have long tenure with the company.
Benefit of the doubt
My score for Standard Chartered largely gives it the benefit of the doubt over the Iranian money-laundering affair, though it remains to be seen whether management's reputation will be permanently tarnished once the dust has settled. The company is now talking of revitalizing its nonexecutive team and possibly addressing the issue of the overly busy chairman, who leads no fewer than three FTSE 100 boards.
AstraZeneca's score is necessarily held back by there being only one executive director -- and he is currently just a stand-in. But if former finance director and interim CEO Simon Lowth is confirmed in the position, early signs suggest that would be good news for investors. His deal to invest in biotech firm Amylin looks the kind of deal that could solve Astrazeneca's predicament over patent expiry.
I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope my research can assist your investment decisions.
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. A special free report from The Motley Fool -- "The One UK Share Warren Buffett Loves" -- explains Buffett's purchase and investing logic in full.
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