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 who have 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 who are collecting fat rewards as the underlying business goes to pot.
In this series, I'm assessing the boardrooms of companies within the FTSE 100. I hope to separate the management teams that are worth following from those that are not. Today, I'm looking at Smith and Nephew (LSE:SN) (NYSE:SNN), Europe's largest manufacturer of artificial hips and knees.
Here are the key directors:
|Sir John Buchanan||(non-exec) Chairman|
|Olivier Bohuon||Chief Executive|
|Julie Brown||Finance Director|
Sir John Buchanan has been chairman since 2006, and was knighted last year for his services to industry. He is a former finance director of BP, and worked for BP for over 30 years in financial and operational roles. He is also deputy chairman of Vodafone, and senior independent director of BHP Billiton, both much larger FTSE 100 companies.
Since becoming CEO in April 2011, Frenchman Olivier Bohuon has repositioned Smith and Nephew with acquisitions in advanced wound care and sports medicine, to reduce the company's dependence on the highly competitive and budget-constrained market for artificial joints. He has also restructured to create a dedicated emerging markets division, and cut operating costs to invest more into R&D.
These initiatives have yet to show through in the share price, which has underperformed the FTSE, but a recently announced 50% dividend increase may help with that.
Mr Bohuon was CEO of French drug maker Pierre Fabre for just six months before joining Smith and Nephew. His earlier career was also in the pharmaceutical industry, with GlaxoSmithKline and U.S. drug company Abbott.
My Bohuon's €1.4m "golden hello" was one reason advisory body Pirc recommended shareholders to vote against the company's remuneration report last year. Thirty percent of investors voted against or abstained.
The new finance director has also been drawn from the pharmaceutical industry. Julie Brown took up the post this month after 25 years at AstraZeneca, in various financial and management positions. A chartered accountant, she had acted as interim chief financial officer while CFO Simon Lowth stood in as interim CEO, but on the appointment of Pascal Soriot, they both reverted to their original positions.
In addition to the almost-obligatory former accountant, Smith and Nephew's roll call of seven non-execs has a number from the pharmaceutical sector.
I analyse 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.
Impressive agenda of change, results not yet fully apparent.
|3. Board Composition. Skills, experience, balance
|4. Remuneration. Fairness of pay, link to performance.
Last remuneration report was contentious.
|5. Directors' Holdings, compared to their pay.
Chairman has £1m+, CEO just £260k.
Overall, Smith and Nephew scores 16 out of 25, a middling-to-low result. However, if Mr Bohuon's initiatives start to show through in the company's performance, and he commits more of his pay to buying the company's shares, the score could move significantly upwards.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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