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 BHP (BHP) (BBL), the global mining group.
Here are the key directors:
|
Director |
Position |
|---|---|
|
Jac Nasser |
(non-exec) Chairman |
|
Marius Kloppers |
Chief Executive |
Halfway through my review of FTSE 100 boards, this is the first that has just one executive director, so it's especially surprising that it should be the 12th largest company in the index.
With multibillion dollar write-downs being announced in the mining sector, investors might be comforted by the presence of a finance director on the board. Glencore also plans to have no finance director after its merger with Xstrata. Personally, I see more value in having a bean counter directly accountable to shareholders than any amount of corporate governance code about part-time independent directors.
Chairman
Rant over, so let's look at the individuals. Jac Nasser has been on the board since 2006, becoming chairman in 2010. The Australian's executive career was spent at Ford, rising to become CEO from 1998 to 2001. He left in the wake of the controversy over fatal accidents involving Firestone tires fitted on Ford SUVs, which saw him reluctantly testifying to a U.S. Congressional committee amid a near-20% plunge in Ford's share price. He then worked as an advisor to JPMorgan Chase's private equity unit.
South African Marius Kloppers joined BHP in 1993 after an earlier career in petrochemicals and management consultancy, rising to join the board in 2006. At that time, BHP had three executive directors. When former CEO Chip Goodyear left the next year, Kloppers was chosen over finance director Chris Lucas to replace him and Lucas departed shortly afterwards.
Replacement
Kloppers was seen as a good steward during the financial crisis, maintaining a sound balance sheet and during his tenure BHP's share price has risen 32% while the shares of rivals Anglo American and Rio Tinto have declined 39% and 11%, respectively. However, he has been criticized for several failed megadeals, and following write-downs after big U.S. shale gas acquisitions last year (for which Kloppers forewent his bonus), there has been open speculation that the company is searching for a replacement.
Internal candidates include several divisional heads and the CFO, who sit on a group management committee chaired by Kloppers.
Around half of BHP's non-execs have a background in the natural resources sector, which seems a sensible balance. They include former minister Baroness Shriti Vadera, Gordon Brown's most trusted advisor on financial markets. Presumably, it's not the done thing to mention car crashes at the BHP board.
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. |
Score 3/5 |
|---|---|
|
2. Performance. Success at the company. |
Score 3/5 |
|
3. Board Composition. Skills, experience, balance |
Score 1/5 |
|
4. Remuneration. Fairness of pay, link to performance. |
Score 3/5 |
|
5. Directors' Holdings, compared to their pay. |
Score 4/5 |
Overall, BHP scores 14 out of 25, a poor result. With just one executive, undermined by anticipation of his departure, there is a corporate governance deficit.
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 U.S., 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.
