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 Capita (LSE:CPI), the business process outsourcing company that collects TV licenses and council tax and runs army recruitment.
Here are the key directors:
|Martin Bolland||(non-exec) Chairman|
|Paul Pindar||Chief Executive|
|Gordon Hurst||Finance Director|
|Andy Parker||Deputy CEO and Joint Chief Operating Officer|
|Vic Gysin||Joint Chief Operating Officer|
|Maggi Bell||Business Development Director|
A chartered accountant, Martin Bolland joined the board in 2008 and became chairman in 2010. He joined Lonrho when it was a sprawling conglomerate under Tiny Rowland in 1981, serving as a divisional CEO from 1986 to 1996. He co-founded private equity firm Alchemy Partners in 1997 and was a partner for 11 years. He has had no other FTSE 100 directorships.
Also a chartered accountant, Paul Pindar joined Capita from 3i in 1987, shortly after 3i backed the 330,000 pound management buyout of Capita from the Chartered Institute of Public Finance and Accountancy. He was appointed managing director in 1991 when Capita listed on the LSE and CEO in 1999.
However, during this time of exponential growth, Capita was run by founder and executive chairman Sir Rodney Aldridge, who resigned in 2006 when it emerged he had secretly lent 1 million pounds to the Labour Party. Since Sir Rodney's departure, Capita's shares have risen more than 90%, far outstripping the FTSE 100 but only marginally better than nearest peer Serco's 80%.
A third chartered accountant, Gordon Hurst joined Capita in 1988 and became finance director in 1996. He is also the company secretary.
Maggi Bell, Andy Parker, and Vic Gysin are a newer generation. Bell, formerly operations director of Manpower, joined Capita in 1999 and the board in 2008. Parker and Gysin joined the company is 2001 and 2002 respectively, and joined the board in 2011. Parker, a chartered accountant, was elevated to deputy CEO last month, potentially lining him up as a successor to Pindar. Gysin is a former army officer.
Capita has just four non-executives including the chairman, outnumbered by executives in contravention of the Corporate Governance Code. Its justification appears to be the "complexity" of the business.
Together with formerly having an executive chairman and a non-exec who had been a long-serving executive, Capita clearly sees itself as distinct from the majority of FTSE 100 boards. The paucity of cross-directorships with other FTSE companies no doubt reinforces that attitude.
I analyze 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.
|3. Board Composition. Skills, experience, balance
Non-compliant, lightweight, dominated by long-serving executives.
|4. Remuneration. Fairness of pay, link to performance.
Not especially controversial; all directors 1 million pounds plus.
|5. Directors' Holdings, compared to their pay.
CEO has 8 million pounds' worth, but FD with 24 years' service under 400k pounds.
Overall, Capita scores 13 out of 25, a poor result. The company's performance has been good, but a tight-knit management team doesn't permit much independent scrutiny.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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