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 recent weeks, I've assessed the boardrooms of five companies within the FTSE 100: GKN (GKN), International Consolidated Airlines Group (IAG 0.20%), National Grid (NG), Meggitt (MGGT), and Tesco (TSCO -0.50%). Today I am going to summarize what I found.
Five FTSE boardrooms
I analyse management teams from five different angles, giving each a score out of five. Here's my overall assessment out of a total possible score of 25:
|
Company |
Reputation |
Performance |
Shareholdings |
|---|---|---|---|
|
Meggitt |
4 |
4 |
4 |
|
National Grid |
3 |
3 |
5 |
|
Tesco |
4 |
3 |
4 |
|
GKN |
3 |
3 |
3 |
|
IAG |
4 |
3 |
1 |
|
Company |
Composition |
Remuneration |
Overall Score |
|---|---|---|---|
|
Meggitt |
3 |
3 |
18 |
|
National Grid |
4 |
3 |
18 |
|
Tesco |
4 |
3 |
18 |
|
GKN |
3 |
3 |
15 |
|
IAG |
0 |
2 |
10 |
Creditable
This was a close-run heat, most notable for the embarrassing performance of IAG, the airline formed from the merger of British Airways and Iberia.
Perhaps most creditable is the performance of Meggitt, which with a market cap of just 3 billion pounds is at the bottom end of the FTSE 100. It has a prestigious chairman who might legitimately grace the boardroom of a much larger company and whose background could scarcely be better suited to overseeing and promoting Meggitt's aircraft brake business. Air Marshal Sir Colin Terry was formerly chief engineer of the RAF and is chairman of the U.K. Military Aviation Authority Safety Advisory Committee.
With a CEO who spent much of his career as a chartered accountant in the aerospace sector, the board is notable for half of its six non-execs also being chartered accountants. There would be egg on many faces if Meggitt's numbers went awry!
Contacts
National Grid's chairman is also of some note. Sir Peter Gershon's contacts in government -- he undertook the Gershon Review into public spending efficiency -- must be as useful as his technology background. With a CEO who has spent 11 years with the company and two long-serving technical divisional directors, there is no shortage of engineering skills on the board.
Coincidentally, Tesco's chairman Sir Richard Broadbent also has experience in the public and private sector: The former investment banker was also head of Customs and Excise. CEO Philip Clarke had the poisoned chalice of following Sir Terry Leahey's 14-year stint, promptly issuing the company's first profit warning for 20 years. He has taken over the role of CEO of U.K. operations to turn the business around, which stakes a lot of the company's future on one man.
Closed shop
GKN is an engineering business of similar size to Meggitt, but has a differently shaped board. The CEO and two divisional directors have long service with the company which prides itself on filling the board from within. That brings strength, but some danger of being too much of a closed shop especially as the non-execs are outvoted if the chairman sides with the executive team.
IAG's score puts it at the bottom of companies that I have looked at so far. Though the individuals have credibility, the complex and political two-tier board structure gives little confidence and there is no finance director on the main board. The directors have awarded themselves soft performance targets, but have invested very little in the business.
I have 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.
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.
