What you need to know about the drink 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 Diageo (LSE: DGE) (NYSE: DEO.US), the world-leading drinks group.
Here are the key directors:
|Dr Franz Humer||(non-exec) Chairman|
|Paul Walsh||Chief Executive|
|Deirdre Mahlan||Finance Director|
|Ivan Menezes||Chief Operating Officer|
Franz Humer’s background is in the drugs industry, initially with Glaxo and subsequently Roche where he rose to become chairman and chief executive. He joined Diageo’s board in 2005 and stepped up to chairman in 2008 when Roche separated the chairman and CEO roles. However he remains chairman of Roche as well as being chairman of INSEAD and this year he joined the board of Citigroup. That's a lot of balls to juggle.
Paul Walsh has spent most of his career at Diageo and its drinks-to-food-to-hotels precursor Grand Metropolitan. He is one of the longest serving FTSE100 chief executives, having been appointed CEO in September 2000 after previously being chief operating officer. He is credited with the disposal of Grand Metropolitan's hotel business in the 1980s, and the sale of Diageo’s food businesses soon after becoming CEO.
In addition to focusing the business through disposals, he has pulled off some highly successful acquisitions and presided over operational improvements that have together driven a trebling of the share price under his tenure. In the same period, the FTSE 100 has dropped by 7%. That performance generated a massive £11m pay packet in 2011, but few investors begrudge his reward for success.
Having trained with PricewaterhouseCoopers, Deirdre Mahlan performed a variety of finance roles in Seagrams, joining Diageo when it acquired that company in 2002. She joined the board as finance director in 2010, having previously been deputy finance director.
An Indian-born American, Ivan Menezes has also spent most of his career with the drinks group, after stints with Nestlé and Booz Allen. He has previously run Diageo’s North American, Asia Pacific and Latin American regions, and his appointment to the board as chief operating officer in March this year was seen as lining him up as a potential successor to Paul Walsh.
Diageo’s seven non-execs, led by Lord Davies, the former trade minister and chairman of Standard Chartered, bring a broad range of 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.|
|2. Performance. Success at the company.|
Probably deserves a 6.
|3. Board Composition. Skills, experience, balance|
|4. Remuneration. Fairness of pay, link to performance.|
High, but justified.
|5. Directors’ Holdings, compared to their pay.|
Substantial, even relative to pay.
Overall, Diageo scores 21 out of 25, the joint highest score so far. I have slightly marked down the company for the composition of its board, as the combination of a long serving executive team and a chairman who has many other demands on his time may make it too executive-dominated. However, shareholders can't complain about the results, and will be hoping that rumours of Mr Walsh’s possible departure are greatly exaggerated or that the board’s succession planning proves successful.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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 Diageo and Standard Chartered, but no other shares mentioned in this article. The Motley Fool owns shares in Standard Chartered.