The FTSE's Worst Boards

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 firms 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. I've now examined 30 companies, and today I'm naming and shaming those at the bottom of the leaderboard.

I look at management teams from five different angles, giving each a mark out of five. The scores are added to produce an overall score out of a maximum 25.

 

Reputation

Performance

Composition

Remuneration

Shareholdings

Overall Score

Glencore

3

2

2

2

3

12

Lloyds Banking (LSE: LLOY.L  )

3

2

3

2

2

12

Shell (LSE: RDSB.L  )

2

4

3

2

1

12

Xstrata

3

2

2

2

3

12

Aviva (LSE: AV.L  )

4

2

2

2

1

11

Barclays (LSE: BARC.L  )

3

2

1

1

4

11

RBS (LSE: RBS.L  )

3

2

3

2

0

10

There are four companies scoring 12, making for a larger-than-normal table.

Bonuses
Royal Bank of Scotland stays in bottom place. The board seems more interested in management bonuses than in backing their own company. They threatened to resign en masse when CEO Stephen Hester's bonus was challenged, but apart from Hester the 11 other directors have an average investment in the bank of just 67,000 pounds. Finance director Bruce van Saun, who didn't give up his bonus, has just 130,000 pounds of shares. That's not a vote of confidence in the bank's turnaround prospects.

Those prospects have brightened a little with the bank's exit from the government's asset protection scheme and the flotation of the first tranche of Direct Line shares, but the breakdown of the sale of branches to Santander was a setback. And even the governor of the Bank of England has said recently that banks' balance sheets can't be trusted: There need to be further write downs.

Clear out
David Walker, who formally becomes chairman at Barclays next week, has the same opinion of the composition of its board as I do. According to today's Financial Times, he plans a total clear out of nonexecs and some changes among the management team, too. New CEO Antony Jenkins is mistaken if he thinks he has a free hand in running the show.

With no CEO presiding at Aviva, executive chairman John McFarlane set in motion a new strategy. After an initially flurry of announcements, the implementation of that has gone quiet, but shareholders might hope much more is going on behind the scenes.

As with RBS, the disconnect between directors' shareholdings and the supposed turnaround potential at Lloyds Banking is a significant issue. After he suffered work-related stress, the board lightened the workload of CEO Antonio Horta-Osorio, but not his remuneration, and the jury is still out on management.

Corporate-governance issues at Glencore and Xstrata knock back both of their scores. The situation won't improve if they merge: Under the current proposals, there won't even be a finance director.

The two executives on the board of Shell have successfully steered its geographical and technical diversification, but a longstanding reputation for over-generous remuneration, coupled with low directors' shareholdings, weighs it down.

I've collated all my FTSE 100 boardroom verdicts on this summary page and will update the rankings after I've analyzed another 15 companies.

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Tony owns shares in Xstrata, Shell, and Aviva 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.


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