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 recent weeks, I’ve assessed the boardrooms of five companies within the FTSE 100: Aberdeen Asset Management (LSN: ADN), Intertek (LSE: ITRK), Melrose (LSE: MRO), Resolution (LSE: RSL) and Vedanta Resources (LSE: VED). Today I am going to summarise what I found.
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Five FTSE boardrooms
I analyse management teams from five different angles, giving each a score out of five to make a maximum score of 25. Here’s my overall assessment:
| Reputation | Performance | Composition | Remuneration | Shareholdings | Overall Score |
|
|---|---|---|---|---|---|---|
| Melrose | 5 | 4 | 3 | 3 | 5 | 20 |
| Intertek | 3 | 4 | 3 | 3 | 4 | 17 |
| Aberdeen | 4 | 4 | 2 | 2 | 2 | 14 |
| Vedanta | 4 | 4 | 1 | 3 | 2 | 14 |
| Resolution | 4 | 1 | 2 | 2 | 2 | 11 |
The Grinder
Melrose stands out as one of the highest scoring companies in the index. The company’s business model is to invest in poorly-performing industrial companies and turn them around in a three-to-five year timeframe, and then sell them at a profit. Thus the board and management is the core source of value of the company. The management team formed Melrose in 2003 after working together in 1990’s conglomerate Wassall, and have grown the company’s market cap from £10m to £3.5bn. With a CEO nicknamed ‘the grinder’ for his interrogation of target company accounts, shareholders are in safe hands.
For one of the lesser-known companies on the FTSE 100, testing company Intertek has an impressive chairman in former Tesco chairman Sir David Reid. Its CEO has an odd background: a former medical doctor who became involved in testing when he invented a safer form of ski binding, and who served as a non exec before becoming CEO. A former division of Inchcape, only the finance director remains from before Intertek’s 2002 flotation.
Selling shares
Martin Gilbert co-founded Aberdeen Asset Management in 1983 and has been CEO since, giving no indication of leaving but selling most of his multi-million pound shareholding in the past two years. The company has an unwieldy board, with six executive directors, several of them very long-serving, and it doesn’t look as if oversight of management is easy. The company has seen spectacular growth, but not without mishap.
Diversified Indian metals and mining group Vedanta has three executive directors: executive chairman Anil Agarwal, deputy executive chairman Navil Agarwal, and CEO Mahendra Mehta. Anil Agarwal founded the company in 1976 and it is still 65% owned by his family trust. There are five non-execs who bring a sensible mix of influence and governance, but without an independent chairman or a finance director there is little external oversight.
Entrepreneur
Life assurance consolidator Resolution has recently brought management in-house, having previously been managed as a fund by insurance entrepreneur Clive Cowdery’s management company. He and co-manager John Tiner are now non-execs on the board, whilst the CEO and finance director previously held the same positions in Resolution’s main subsidiary Friends Life. Bringing management in-house enabled Resolution to maintain its premium listing, but with the external managers-turned-non-execs in line for a substantial profit-share it’s an oddly-composed board.
I’ve collated all my FTSE 100 boardroom verdicts on this summary page. I hope my research can assist your investment decisions.
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> Tony owns shares in Tesco but no other shares mentioned in this article.
