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. Today I'm summarizing the second batch of five companies, and introducing the leaderboard for the best -- and worst -- companies that I've analyzed so far. I've collated all my FTSE 100 boardroom verdicts on this summary page.
Today's five companies are Aviva
5 FTSE Boardrooms
I analyze management teams from five different angles. Here's my assessment:
| BG Group | HSBC | Prudential | Centrica | Aviva | |
|---|---|---|---|---|---|
| Reputation | 5 | 4 | 3 | 4 | 4 |
| Performance | 4 | 3 | 4 | 3 | 2 |
| Composition | 4 | 2 | 2 | 2 | 2 |
| Remuneration | 3 | 3 | 1 | 3 | 2 |
| Shareholdings | 2 | 4 | 5 | 3 | 1 |
| Overall Score | 18 | 16 | 15 | 15 | 11 |
BG Group comes out top, with an impressive bunch of executives who have produced results, balanced by a strong non-executive team. They are held back by the miserliness of directors' holdings.
While BG's five executives have a chairman and nine non-execs to hold them in check, Centrica's five executives are barely outnumbered by six non-execs (though there is a plan to recruit a seventh) plus the chairman. That puts a lot of responsibility on city grandee Sir Roger Carr who juggles several other jobs.
HSBC has top-flight managers with sizable cash investments in the bank. But they have been in place for only two years and HSBC's policy of internal recruitment diminishes the quality of external scrutiny.
Prudential has seven executive directors, who can only just be outvoted by the chairman and seven non-execs. CEO Tidjane Thiam might well have the highest Mensa score of FTSE 100 directors, but a weak-ish chairman and paucity of non-execs may not be a very effective brake on his ambition.
Lacking a CEO, rival Aviva's board is in disarray. The reputation of temporary executive chairman John McFarlane salvages an otherwise abysmal score. Only the finance director has any significant stake in the business.
Leaderboard
Including RBS, I have assessed 11 FTSE 100 companies so far. This is how the leaderboard of management excellence stands:
In the top two positions are GlaxoSmithKline with an overall score of 19 and BG Group with an overall score of 18. GSK nudges ahead of BG on the strength of its directors' shareholdings.
Lack of directors' investment in their own business characterizes the race to the bottom, where we have Aviva with an overall score of 11 and RBS with an overall score of 10.
Given the energy that RBS' board has put into defending executive bonuses as being justified by progress made in turning around the bank, it's surprising that the 12 of them together have less than 2 million pounds invested in it. That gets the only zero I've awarded so far, and is yet another reason not to own RBS shares.
Buffett's favorite FTSE share
Let me finish by adding 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.
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