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 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 Schroders (LSE:SDR), the largest of the FTSE's asset managers.
Here are the key directors:
|Andrew Beeson||(non-exec) Chairman|
|Michael Dobson||Chief Executive|
|Kevin Parry||Finance Director|
|Philip Mallinckrodt||Head of Private Banking|
|Massimo Tosato||Head of Distribution|
Schroders is one of the FTSE's family firms. The founding family control 44% of the shares. I argued recently that it's one of the main reasons for Schroders' outperformance of the FTSE index.
The family are represented on the 13-strong board by octogenarian non-exec Bruno Schroder, great-great-grandson of the founder, and his nephew Philip Mallinckrodt, who runs the private banking arm of the firm.
Andrew Beeson became chairman last year, but he has been on the board since 2004. He knows something about family firms: he founded stockbroker Beeson Gregory, subsequently becoming chairman of Evolution Group when it merged with his firm.
CEO Michael Dobson's long tenure at Schroders is a characteristic of family firms. He can claim much of the credit for the business's performance. He was recruited in 2001, shortly after serving as Morgan Grenfell's CEO for 10 years.
At the time Schroders had plunged into the red. Dobson launched a turnaround plan that cut staff numbers by a quarter, improved investment returns and strengthened distribution. Since his appointment Schroders' shares have gone up by 178%.
FD Kevin Parry's appointment was unconventional, but again underlines the longer time-frame of family firm executives. Originally a chartered accountant, he was a non-executive of Schroders from 2003 to 2009 whist running a management consultancy. In 2009 at the height of the financial crisis he became its CFO.
Parry has announced his intention to leave the firm. His replacement will be Richard Keers, who was Schroders' audit partner at PwC from 2006 to 2010. He joins in May, just after the two-year cooling off period before auditors are allowed to move to client companies.
The two divisional heads are also long-serving. Family member Philip Mallinckrodt joined the firm in 1994 and became a director in 2009. Massimo Tosato joined in 1995 and became a director in 2001. The non-execs have a strong finance sector bias.
Schroder and Mallinckrodt declare astonishing financial interests in the company's shares as beneficiaries of trusts, Schroder's 278 million pounds dwarfed by Mallinckrodt's 1.6 billion pounds. Dobson, who didn't inherit his shares, has a more human-scale 5 million pounds holding. That's human if you earn an investment banker's pay.
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.
|2. Performance. Success at the company.
|3. Board Composition. Skills, experience, balance
|4. Remuneration. Fairness of pay, link to performance.
Uncontroversial, if high.
|5. Directors' Holdings, compared to their pay.
Overall, Schroders scores 20 out of 25, a very good result. The composition of the board is idiosyncratic, but it's proved effective.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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