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 Johnson Matthey (JMAT +1.74%), the world's largest maker of platinum-based products.
Here are the key directors:
| Director | Position |
|---|---|
| Tim Stevenson | (non-exec) Chairman |
| Neil Carson | Chief Executive |
| Robert MacLeod | Finance Director |
| Larry Pentz | Executive Director, Environmental Technologies |
| Bill Sandford | Executive Dairector, Precious Metal Products |
Tim Stevenson has been chairman since 2011. He should know the sector well. Prior to joining Johnson Matthey, he was chairman of specialty chemicals manufacturer Morgan Crucible. He earlier worked for 25 years for lubricants and chemicals group Burmah Castrol starting, as a qualified barrister, in its legal department and rising to be CEO for two years until the business was acquired by BP in 2000.
Company man
Neil Carson has a CV typical of CEOs of the smaller and more specialized FTSE100 companies, that of the company man. He joined Johnson Matthey in 1980 and has worked his way up the group, running various divisions before being appointed CEO in 2004. His predecessor had 41 years' service.
Though Johnson Mathey's share price tracked the FTSE in the first half of Carson's tenure, the second half has seen its shares substantially outperform the index.
The two divisional directors on the board are also longtime company men. Larry Pentz has been with the company since 1984, and has run several of its U.S. divisions. Bill Sandford joined even earlier, in 1977.
Finance Director Robert MacLeod is an outsider. He joined the company in his current post in 2009, having previously been finance director of WS Atkins for five years. A chartered accountant, he earlier worked in finance roles at Enterprise Oil.
Board structure
It's relatively unusual in FTSE100 companies for there to be equal numbers of executives and non-executives (excluding the chairman, whose independence is a moot point). Johnson Matthey's board is composed of four executives, with four non-execs plus the chairman. In such a technologically complex business, that puts a lot of onus on the non-execs to effectively hold management to account.
Though the four non-execs have good CVs, only one, Alan Ferguson, seems to have much experience in the chemicals sector, through his non-executive directorship of Croda. He's also the almost-obligatory former finance director on the board.
With the executives and chairman having a monopoly on sectoral experience, I'm left with a suspicion that Johnson Matthey hasn't got the best mix of non-execs.
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. Strong, though hard to score separately from performance. | Score 4/5 |
| 2. Performance. Success at the company. Very good. | Score 4/5 |
| 3. Board Composition. Skills, experience, balance. Questionable. | Score 2/5 |
| 4. Remuneration. Fairness of pay, link to performance. Uncontroversial. | Score 3/5 |
| 5. Directors' Holdings, compared to their pay. Carson has 5 million pounds' worth, other directors less. | Score 4/5 |
Overall, Johnson Matthey scores 17 out of 25, a median result. The management team has been entrenched in the company for a long time, successfully so, but it's questionable whether there is adequate oversight.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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