Which blue-chip boardrooms aren’t up to scratch?
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 firms are those run by executives collecting fat rewards as the underlying business goes to pot.
In recent weeks, I've been assessing the boardrooms of companies within the FTSE 100 (UKX). I've now examined 30 companies, and today I'm naming and shaming those at the bottom of the leader-board.
I look at management teams from five different angles, giving each a mark out of five. The scores are added to produce an overall score out of a maximum 25.
| | Reputation | Performance | Composition | Remuneration | Shareholdings | Overall Score |
|---|
| Glencore | 3 | 2 | 2 | 2 | 3 | 12 |
| Lloyds Banking | 3 | 2 | 3 | 2 | 2 | 12 |
| Shell | 2 | 4 | 3 | 2 | 1 | 12 |
| Xstrata | 3 | 2 | 2 | 2 | 3 | 12 |
| Aviva | 4 | 2 | 2 | 2 | 1 | 11 |
| Barclays | 3 | 2 | 1 | 1 | 4 | 11 |
| RBS | 3 | 2 | 3 | 2 | 0 | 10 |
There are four companies scoring 12, making for a larger than normal table.
Bonuses
Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) stays in bottom place. The board seems more interested in management bonuses than in backing their own company. They threatened to resign en mass when CEO Stephen Hester's bonus was challenged, but apart from Mr Hester the 11 other directors have an average investment in the bank of just £67k. Finance director Bruce van Saun, who didn't give up his bonus, has just £130k of shares. That's not a vote of confidence in the bank's turnaround prospects.
Those prospects have brightened a little, with the bank leaving the government's asset protection scheme and the flotation of the first tranche of Direct Line (LSE: DLG) shares, but the breakdown of the sale of branches to Santander was a setback. And even the Governor of the Bank of England has said recently that banks' balance sheets can't be trusted: there needs to be further write downs.
Clear Out
David Walker, who formally becomes chairman at Barclays (LSE: BARC) (NYSE: BCS.US) next week, has the same opinion of the composition of its board as I do. According to today's Financial Times he plans a total clear out of non-execs and some changes amongst the management team too. New CEO Antony Jenkins is mistaken if he thinks he has a free hand in running the show.
With no CEO in situ at Aviva (LSE: AV) (NYSE: AV.US), executive chairman John McFarlane set in train a new strategy. After an initially flurry of announcements the implementation of that has gone quiet, but shareholders might hope much is going on behind the scenes.
As with RBS, the disconnect between directors' shareholdings and the supposed turnaround potential at Lloyds Banking (LSE: LLOY) (NYSE: LYG.US) is a significant issue. After he suffered work-related stress the board lightened the workload of CEO Antonio Horta-Osorio but not his remuneration, and the jury is still out on management.
Corporate governance issues at both Glencore (LSE: GLEN) and Xstrata (LSE: XTA) knock back both their scores. The situation won't improve if they merge: under the current proposals, there won't even be a finance director.
The two executives on the board of Shell (LSE: RDSB) (NYSE: RDSB.US) have successfully steered its geographical and technical diversification, but a long standing reputation for over-generous remuneration, coupled with low directors' shareholdings, weigh it down.
I've collated all my FTSE 100 boardroom verdicts on this summary page, and will update the rankings after I've analysed another 15 companies.
Buffett's favourite FTSE share
Let me finish by adding that legendary investor Warren Buffett has always looked for impressive management teams when pinpointing which shares to buy. So I think it's important to tell you that the billionaire stock-picker has recently acquired a substantial stake in a prominent FTSE 100 company.
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Mr Buffett, don't forget, rarely invests outside his native United States, which to my mind makes this British blue chip -- and its management -- all the more attractive. So why not download the report today? It's totally free and comes with no further obligation.
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> Tony owns shares in Xstrata, Shell and Aviva but no other shares mentioned in this article.
