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). Today I'm naming and shaming the bottom five companies from those that I have looked at so far. After analysing 45 firms, nearly half the FTSE, here are the lowest scoring so far.
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|
|International Consolidated Airlines||4||3||0||2||1||10|
A new arrival in joint bottom place is International Consolidated Airlines Group (LSE: IAG), formed from the merger of British Airways and Iberia. Merger of sorts, that is. IAG is a holding company, but British Airways and Iberia each have their own boards which retain considerable autonomy.
The structure has more of the feel of a bureaucratic European Union talking shop with qualified majority voting than of a company board. No doubt that's the political price BA had to pay to get the merger done, but it must be an additional impediment to CEO Willie Walsh's agenda to scythe through Iberia's bloated cost base.
The board's score is boosted by his reputation forged at Aer Lingus and BA, but the jury is out on whether he will have the clout to successfully take on the Spanish unions.
Prospects for the three financial stocks – RBS (LSE: RBS), Barclays (LSE: BARC) and Aviva (LSE: AV) have all brightened since I originally scored them, and other circumstances have changed that might give them slightly better results if I repeated the exercise now.
RBS has made progress with cleaning out its balance sheet. I've been hyper-critical of the paucity of the directors' holdings, but it's fair to say CEO Stephen Hester now has £1m plus invested in the bank. But finance director Bruce Van Saun's shareholding represents just two months worth of his base salary: it's that win-win situation where directors lose nothing if they fail that I find corrosive.
Barclay's new CEO Anthony Jenkins will make his mark with investors – one way or another – when he reveals the result of his strategic review in February. Chairman Sir David Walker has already started to change the composition of the board which was previously packed with ex-investment bankers.
Batman and Robin
Aviva has a brand new CEO starting next year, and meanwhile executive chairman John McFarlane has shaken the company up since the departure in disgrace of former CEO Andrew Moss. The new management team look like they will make a dynamic duo, with the only question mark possibly being whether they can settle who is Batman and who is Robin.
Finally I've created a score for Glenstrata, the board investors will get when Glencore (LSE: GLEN) and Xstrata merge. Both companies scored identically, and shareholders can't hope for anything better from the merged board. Under present proposals, there won't even be a finance director on the board, enabling the merged company to be dominated by its CEO even more than either is at present.
Shell and Lloyds Banking also scored just 12.
I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope my research can assist your investment decisions.
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.
A special free report from The Motley Fool -- "The One UK Share Warren Buffett Loves" -- explains Mr Buffett's purchase and investing logic in full.
And 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.
> Tony owns shares in Aviva, Shell and Xstrata but no other shares mentioned in this article.