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 (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Intertek (LSE: ITRK), the company that tests everything from toys and clothes to industrial and medical equipment.
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Here are the key directors:
| Director | Position |
|---|---|
| Sir David Reid | (non-exec) Chairman |
| Wolfhart Hauser | Chief Executive |
| Lloyd Pitchford | Finance Director |
Impressive
For one of the smaller and less well-known FTSE 100 companies, Intertek has an impressive chairman. Sir David Reid took up the post in 2011 after retiring as chairman of Tesco. He is also the senior independent director of Reed Elsevier, whilst past FTSE 100 directorships include Legal & General. A chartered accountant, Sir David worked in the finance functions of Philips and a predecessor to BAT, before becoming Tesco finance director in 1985, subsequently becoming its deputy chairman and then chairman.
Wolfhart Hauser became CEO in 2005, unusually after serving as a non exec for three years. His background is equally unusual: a medical doctor, he was tempted into the quality control business by German testing firm TUV after he invented a method of attaching skis to prevent skiing injuries which was certified to ISO standards. He subsequently became CEO of TUV. Intertek shares have trebled under his tenure, against a 25% rise in the FTSE index.
Mr Hauser became a non exec of Reed Elsevier earlier this year, creating an intriguing relationship with the company.
Inchcape
Lloyd Pitchford has been finance director since 2010. A chartered accountant, he worked for Mobil and then BG Group for ten years, in finance and operations roles, latterly as group financial controller before taking up his current post with Intertek. The former finance director has been with the company since it was a division of Inchcape, before Intertek’s 2002 flotation.
The former chief operating officer left the board around the same time, whilst the former chairman before Sir David Reid’s appointment had also been with the company since flotation, thus completing Intertek’s break with its past.
Intertek has an impressive-looking board for its size, including the CEOs of FTSE 250 firms Rentokil and BTG.
A welcome sight in Intertek’s annual report is a calculation of directors’ shareholdings compared to their salary. Mr Hauser has a holding of over 5-times, Mr Pitchford two-times.
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. Good with notable chairman. |
Score 3/5 |
|
2. Performance. Success at the company. CEO’s tenure has been successful. |
Score 4/5 |
|
3. Board Composition. Skills, experience, balance. Good. |
Score 3/5 |
|
4. Remuneration. Fairness of pay, link to performance. Uncontroversial. |
Score 3/5 |
|
5. Directors’ Holdings, compared to their pay. See above. |
Score 4/5 |
Overall, Intertek scores 17 out of 25, a good result. The evolution from former Inchcape directors to a new generation has been pulled off successfully, whilst he CEO has delivered shareholder value.
I’ve collated all my FTSE 100 boardroom verdicts on this summary page.
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Legendary investor Warren Buffett has always looked for impressive management teams when picking stocks. His recent acquisition, Heinz, has long had a reputation for strong management. Indeed Mr Buffett praised its “excellent management” alongside its high quality products and continuous innovation.
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> Tony owns shares in Tesco, BAT and BG Group but no other shares mentioned in this article. The Motley Fool owns shares in Tesco.
