The Men Who Run SSE

LONDON -- 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 SSE (LSE: SSE.L  ) , whose recently announced 9% price increase was not popular with consumers.

Here are the key directors:

Director

Position

Lord Smith of Kelvin

Nonexecutive chairman

Ian Marchant

Chief executive officer

Gregor Alexander

Finance director

Alistair Phillips-Davies

Generation and supply director

Lord Smith of Kelvin has been chairman since 2005, and he also chairs FTSE 100 engineer Weir Group (LSE: WEIR.L  ) . A former chairman of the BBC with a background in accountancy and finance, he sits as a crossbench life peer and has been named as chairman of the new Green Investment Bank. That's a busy agenda.

Safe and steady
Ian Marchant trained as an accountant and then joined a predecessor company in 1992, becoming finance director of SSE in 1998 and stepping up to CEO in 2002. As befits a utility, his stewardship has been safe and steady. He has largely continued the strategy of his predecessor Jim Forbes, under whom he served as FD, including the company's push into renewables.

However, he has taken some bold initiatives, such as breaking ranks with the other big utilities to sell all SSE's electricity in the open market and pulling out of the company's junior position in a nuclear consortium.

One blot on his copybook was SSE's conviction for doorstep mis-selling in 2011, for which sin the directors accepted a cut in bonuses.

Gregor Alexander's tenure with other companies goes back many years to 1990. He became FD in 2002. A relative newcomer, Alistair Phillips-Davies joined the company in 1997 and the board in 2002.

There are five nonexecs with backgrounds in banking, finance, and business, though none with obviously relevant industry experience.

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

Factor

Comment

Score (out of 5)

Reputation: Management CVs and track record

All good

3

Performance: Success at the company

Solid over a long period

4

Board Composition: Skills, experience, and balance

The chairman is busy, and it's not clear how involved in energy the nonexecs are

2

Remuneration: Fairness of pay and link to performance

Reasonable

3

Directors' Holdings: Compared to their pay

CEO owns 3 million pounds' worth; other execs own more than 1 million pounds; chairman owns 300,000 pounds

4

Overall, SSE scores 16 out of 25, which puts it in the top half of companies that I've looked at so far.

What strikes me most is the apparent disconnect between the long time served in the company by the executives and the irrelevance of the nonexecs' backgrounds; they're neither consumer champions nor from relevant industries. With a busy chairman, the management may not be under as much scrutiny as might be desired. But it would be hard to fault their ability and performance.

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

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Tony owns shares in SSE but no other shares mentioned in this article. 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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