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 firms are those run by executives collecting fat rewards as the underlying business goes to pot.
In recent weeks, I've been assessing the boardrooms of companies within the FTSE 100 (UKX). Today I'm naming and shaming the bottom five companies from the first 15 that I have looked at so far.
I look at management teams from five different angles, giving each a mark out of five. The scores are added to produce an overall score out of a maximum 25.
|
|
AstraZeneca |
Shell |
Aviva |
Barclays |
RBS |
|---|---|---|---|---|---|
| Reputation | 3 | 2 | 4 | 3 | 3 |
| Performance | 3 | 4 | 2 | 2 | 2 |
| Composition | 3 | 3 | 2 | 1 | 3 |
| Remuneration | 2 | 2 | 2 | 1 | 2 |
| Shareholdings | 3 | 1 | 1 | 4 | 0 |
| Overall Score | 14 | 12 | 11 | 11 | 10 |
Is it a surprise that financial firms dominate the bottom of the league? Two of the three currently lack a permanent CEO, and all have troubles.
Bonuses
Royal Bank of Scotland (LSE: RBS.L) earns its bottom place because of the slow rate of progress in turning the company's performance around, and its board's seemingly greater interest in management bonuses than in backing their own company. The board threatened to resign en masse when CEO Stephen Hester's bonus was threatened (he later sacrificed it).
Apart from Hester, the 11 other directors have an average investment in the bank of just 53,000 pounds. Finance Director Bruce van Saun, who didn't give up his bonus, has just 102,000 shares, and Chairman Sir Philip Hampton has 61,000. That's not a vote of confidence in the bank's prospects. Tensions with the government don't help.
Barclays' (LSE: BARC.L) board changes faster than I can keep up with. Its chairman resigned, then its CEO departed (and COO, too), then its chairman came back, now it has a new nonexecutive chairman-designate and has just appointed retail banking chief Antony Jenkins as CEO. The chairman of its remuneration committee has quietly departed, an example her peers on other overpaid and underperforming boards might consider following.
However, the board is still stuffed with former investment bankers, and the ramifications of the LIBOR scandal remain to be played out.
Cheap?
With no CEO, Aviva (LSE: AV.L) Executive Chairman John McFarlane has set in motion a new strategy. His reputation is good and early signs are promising, but it's too early to draw firm conclusions. The company has yet to shake off its reputation for overpaying, and the board hasn't invested much of its own money into a stock many private investors think of as cheap.
It's surprising to see Shell (LSE: RDSB.L) languishing near the bottom. The two executives on its board have successfully steered its geographical and technical diversification. But a longstanding reputation for overgenerous remuneration, coupled with low directors' shareholdings, knock it back.
AstraZeneca (LSE: AZN.L) had just one director -- interim CEO Simon Lowth -- when I analyzed it. The appointment of Pascal Soriot from Roche might improve matters, but Lowth may not stay on as finance director.
I've collated all my FTSE 100 boardroom verdicts on this summary page, and will update the rankings after I've analyzed another 15 companies.
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