The Men Who Run Xstrata

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 Xstrata (LSE: XTA.L  ) , the mining group subject to an agreed bid from Glencore (LSE: GLEN.L  ) .

Here are the key directors:

Director

Position

Sir John Bond

(non-exec) Chairman

Mick Davis

Chief Executive

Trevor Reid

Finance Director

Santiago Zaldumbide

Executive Director

Sir John Bond rose through the ranks to become CEO at HSBC in 1993 and chairman from 1998 until 2006. That was a time of rapid expansion by the bank, including its disastrous foray into U.S. subprime lending.

He was then chairman of Vodafone in 2006, departing in 2011 soon after the Ontario Teachers' Pension Plan criticized the company's "disastrous" acquisition record.

He became chairman of Xstrata in May 2011, replacing Willy Strothotte, who was also chairman of Glencore. His appointment was seen as guaranteeing that Xstrata shareholders would get fair value if 34% shareholder Glencore made an approach.

In any event, Xstrata's largest independent shareholder is holding out for better terms than were accepted by the board, and Sir John is the prospective chairman of the combined group.

Acquisitions
Mick Davis became CEO when Xstrata floated in 2002, having previously been CFO of Billiton. He was an architect of its merger with BHP but left when he did not get the top job. He then built up Xstrata through a series of acquisitions, making unsuccessful tilts at Anglo American and the now struggling Lonmin.

The FTSE's highest-paid director in 2011, Davis has been criticized for the planned retention payments that Xstrata would pay top management under its deal with Glencore, which initially were not at all performance-related.

Trevor Reid became finance director in 2002 and was the FTSE's highest-paid FD in 2009. His background is in banking and corporate finance, presumably more appropriate for Xstrata's deal-making than for counting beans.

Santiago Zaldumbide, who runs Xstrata Zinc, was formerly with Rio Tinto, Repsol, and Banesto.

Xstrata's nine non-execs include three Glencore representatives, meaning that the chairmen hold the balance of power between the independent non-execs and the Xstrata/Glencore camp.

I analyze management teams from five different angles. Here's my assessment:

1. Reputation -- Management CVs and track record.

Strong execs.

Score: 3/5

2. Performance -- Success at the company.

Share price down 8% since flotation.

Score: 2/5

3. Board Composition -- Skills, experience, balance

Not sufficiently independent.

Score: 2/5

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

Highly paid.

Score: 2/5

5. Directors' Holdings -- compared to their pay.

Reasonable.

Score: 3/5

Overall, Xstrata scores 12 out of 25, an equally poor result to Glencore's. A highly acquisitive growth strategy has arguably benefited management more than investors.

I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope it helps with your research.

Buffett's favorite FTSE share
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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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Tony Reading owns shares in Xstrata, HSBC, and Vodafone, but no other shares mentioned in this article. Motley Fool newsletter services have recommended buying shares of Vodafone Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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