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 (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Croda (LSE: CRDA.L ) , the specialty chemicals group that joined the FTSE 100 in March this year.
Here are the key directors:
|Martin Flower||(non-exec) Chairman|
|Steve Foots||Chief Executive|
|Sean Christie||Finance Director|
|Keith Layden||Chief Technology Officer|
Martin Flower has been chairman since 2005. His executive career was largely spent with thread manufacturer Coats, where he worked for 36 years, finishing as its chief executive. He also chairs small-cap Low & Bonar (LSE: LWB.L ) and is on the board of mid-cap materials firm Morgan Crucible (LSE: MGCR.L ) , which has a different product set from Croda but significant overlap in philosophy and strategy.
Like their chairman, two of Croda's executive team are one-company employees: something perhaps more common in Croda's Yorkshire environment than the more typical London-headquartered firm.
Steve Foots joined Croda as a graduate trainee in 1990, joined the board in 2010 and stepped up from running European operations to become chief executive at the relatively young age of 43 this year. His predecessor, Mike Humphrey, had worked for Croda for 42 years and was the boss for 13 years.
Chief technology officer Keith Layden has worked for Croda since 1984, and was appointed to the board in what was a new position shortly after Steve Foots took the helm.
Finance director Sean Christie is a relative newcomer, joining the company as finance director in 2006. He was previously finance director at Northern Foods.
Croda's four non-execs bring a balance of business, accounting, and corporate finance skills. Overall the board, understandably, doesn't have quite the same weight as its much larger peers in the FTSE index, but the company looks to be in good hands.
Indeed, the board's investment in the firm puts many larger companies to shame, with the three executives all having £1 million-plus in shares. Steve Foots' £2 million holding is four times his basic salary. "Newcomer" Sean Christie has £3.8 million worth of shares, so these investments are not just a feature of long service. The chairman and two of the four non-execs also have holdings in excess of £300,000.
I analyze management teams from five different angles to help work out a verdict. Here's my assessment:
|1. Reputation. Management CVs and track record. Sound.||Score 3/5|
|2. Performance. Success at the company. Excellent.||Score 4/5|
|3. Board Composition. Skills, experience, balance. Good.||Score 3/5|
|4. Remuneration. Fairness of pay, link to performance. Uncontroversial.||Score 3/5|
|5. Directors' Holdings, compared to their pay. Excellent.||Score 5/5|
Overall, Croda scores 18 out of 25, a very good result. One of the smallest firms in the FTSE 100, the company is fiercely protective of its independence and shareholders' interests seem to be well-served by the board.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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 U.K. Share Warren Buffett Loves" -- explains Buffett's purchase and investing logic in full.
And 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.
Are you a sophisticated investor hoping to profit from this uncertain economy? We urge you to read "10 Steps to Making a Million in the Market" today -- your wealth could be transformed. Click here now to request your free, no-obligation copy. The Motley Fool is helping Britain invest. Better.
Further Motley Fool investment opportunities: