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. Today I'm looking at the leaderboard of the top five from the first 30 companies I have looked at so far.
I look at management teams from five different angles, giving each a score out of five. The scores are added to produce an overall score out of 25. Here's the current running:
|
Company |
Reputation |
Performance |
Composition |
Remuneration |
Shareholdings |
Overall Score |
|---|---|---|---|---|---|---|
|
Rolls-Royce |
4 |
4 |
5 |
4 |
4 |
21 |
|
Pearson |
4 |
4 |
4 |
3 |
5 |
20 |
|
Petrofac |
4 |
5 |
3 |
4 |
4 |
20 |
|
Randgold Resources |
4 |
5 |
3 |
3 |
5 |
20 |
|
Land Securities |
4 |
3 |
4 |
4 |
5 |
20 |
Close Pack
Rolls-Royce has edged into the lead of a close pack. All five boards are led by management with strong reputations. Rolls-Royce just edges it with consistent high scores across the categories and an especially good score for the composition of its board.
That's a measure of the mix and balance of skills and experience on the board, as well as the balance of power. I especially like that Rolls-Royce has five executive directors, including two who were previously chief engineers on Rolls-Royce's flagship Trent engine program. To my mind it's a good thing when senior management are represented on the board, exposing the nonexecutives to the nitty-gritty of debate within the management team and not just the picture the CEO chooses to paint.
Their long service with the company and engineering backgrounds are balanced by the external hire of a former finance man as CEO and a former investment banker as chairman. Rolls-Royce's nine nonexecs make for a large board, but one bursting with experience.
Shareholdings
All of the companies in the leading pack score well for directors' shareholdings. That's an aspect I've found generally quite disappointing as I've analyzed companies for this series. I prefer to see holdings of actual shares, in amounts significant compared to remuneration. Then the directors share the pain of immediate loss if the price drops, and the more shares they have, the better signal buying and selling provides.
Pearson's six executives all have substantial holdings. CEO Marjorie Scardino, currently one of only four female FTSE 100 CEOs, announced her departure recently, and an internal successor has been appointed, but the strong board including several divisional executives should ensure a smooth transition.
Both Petrofac and Randgold Resources have been built up from small companies by entrepreneurs who continue to hold large stakes in the business. At Petrofac, the chairman holds the balance of power between five executives and five nonexecs. Randgold's highly credible chairman, finance director, and nonexecs provide balance.
At Land Securities, Alison Carnwath is the only female to chair an FTSE 100 board. It's the only company in this pack to get a middling score for performance, but that's because the CEO is too new to properly judge in his new role.
I've collated all my FTSE 100 boardroom verdicts on this summary page and will update the leaderboard after I've looked at another 15 companies.
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