What you need to know about the defence group's top executives.
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 BAE Systems (LSE: BA), Britain’s largest defence contractor which has proposed a merger with Franco-German EADS.
Here are the key directors:
| Director | Position |
|---|
| Dick Olver | (non-exec) Chairman |
| Ian King | Chief Executive |
| Peter Lynas | Finance Director |
| Linda Hudson | President and CEO of BAE Systems, Inc. |
An engineer by training, Dick Olver was appointed chairman in 2004 after a life-long career at BP (LSE: BP) where he rose to become deputy chief executive. He was named Non-Executive Director of the Year in March 2012. He is credited with instituting procedures to restore BAE’s standing after a series of bribery scandals had tarnished its reputation. However his strident approach to that issue led to a public falling out with the then CEO Mike Turner in 2008 leading to the latter’s departure after 42 years with the company.
If the BAE-EADS merger were to go ahead then Dick Olver is tipped in some quarters to take on the combined chairmanship, with EADS CEO – and driver of the proposed deal -- Tom Enders as CEO.
US defence contracting
BAE’s current CEO, Ian King, took over in 2008. He commenced his career in 1976 with Marconi, which merger with British Aerospace in 1999 to form BAE. His former roles include finance director of Marconi Defence Systems. As CEO of BAE he has increased the company’s involvement in US defence contracting, which now accounts for 40% of the group’s business, and he has diversified into cyber security.
However the proposed EADS tie-up seems at odds with this strategy, as the US has been less keen on French and German defence suppliers. Critics see the proposed deal as a short-term response to US and UK cut-backs rather than a strategically sound move.
A career accountant, Peter Lynas joined Marconi in 1985 after an earlier stint at De La Rue (LSE: DLAR). Linda Hudson runs BAE Systems, Inc, the US based defence contracting arm that to some extent is ring-fenced, and which by law must be controlled by US citizens. Ms Hudson’s career has been spent in the US aerospace and defence sector, joining BAE in 2007.
The group has seven non execs with wide ranging backgrounds.
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.
Reasonable. | Score 3/5 |
2. Performance. Success at the company.
Fair. | Score 3/5 |
3. Board Composition. Skills, experience, balance
Balanced. | Score 3/5 |
4. Remuneration. Fairness of pay, link to performance.
Reasonable. | Score 3/5 |
5. Directors’ Holdings, compared to their pay.
Execs have decent holdings. | Score 3/5 |
There is little remarkable about BAE’s board, reflected in its overall score of 15 out of 25.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
Buffett's favourite FTSE share
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> Tony owns shares in BAE Systems but no other shares mentioned in this article.
