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. I hope to separate the management teams that are worth following from those that are not. Today, I am looking at Serco (SRP +0.22%), the outsourcing group.
Here are the key directors:
| Director | Position |
|---|---|
| Alastair Lyons | (non-exec) Chairman |
| Christopher Hyman | Chief Executive |
| Andrew Jenner | Finance Director |
Alastair Lyons was appointed chairman in 2010. He is also chairman of FTSE 100 insurer Admiral and deputy chairman of FTSE 250 house builder Bovis.
A chartered accountant, he undertook finance roles in HP Bulmer, Asda, and National & Provincial Building Society, before moving up to be CEO of National & Provincial in 1994. A string of non-executive posts in the public sector, from which Serco derives much of its business, was cited by the company on his appointment.
Ethical
Also a chartered accountant, Christopher Hyman has been CEO since 2002. An Indian Pentecostal Christian from South Africa, described in the Guardian as "combining the zeal of Cliff Richard with the determination of Seb Coe," he was one of just a few non-whites to study at Natal University in the Apartheid era and has sought to carve out an ethical reputation for the group.
After working for Arthur Andersen and Ernst & Young, he joined Serco in 1994 as European finance director, becoming group finance director in 1999 and stepping up to CEO three years later. Under his leadership Serco's sales have risen by a factor of four and profits by a factor of five, while the share price has tripled.
Staff numbers have also increased by a factor of six, a measure of Serco's success in transferring operations from the public sector.
Controversy
Andrew Jenner's time as finance director also dates from 2002. Unsurprisingly also a chartered accountant, he joined Serco in 1996 as financial controller after a stint at Unilever, and became corporate finance director of the acquisitive group in 1999.
He found himself at the centre of a controversy in 2010 when he asked Serco's 200 largest suppliers to take a 2.5% cut after Serco itself was squeezed by Coalition cuts, temporarily knocking 6% off the share price.
Serco's four non-execs, all with solid blue-chip backgrounds, include two former finance directors, which makes for a somewhat skewed skill set overall.
Directors' holdings
The company has a share ownership requirement of two times base salary for the CEO and one times for the FD. These have been substantially exceeded.
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. Very good. | Score 4/5 |
| 2. Performance. Success at the company. Excellent. | Score 4/5 |
| 3. Board Composition. Skills, experience, balance Busy chairman, skewed skill set but impressive backgrounds. | Score 3/5 |
| 4. Remuneration. Fairness of pay, link to performance. Uncontroversial, except with public-sector unions. | Score 3/5 |
| 5. Directors' Holdings, compared to their pay. See above. | Score 5/5 |
Overall, Serco scores 19 out of 25, a good result. The two long-serving executives have delivered.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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