What you need to know about the top executives of mining group Rio Tinto plc (LON: RIO).
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 Rio Tinto (LSE: RIO) (NYSE: RIO.US), the mining group whose well-known CEO has just resigned after the company suffered an unexpectedly large $14bn impairment charge.
Surprising
Often companies are left in a lengthy period of interregnum when the CEO is forced out, even if an internal candidate is ultimately selected to take over. Not so with Rio Tinto. The surprising departure of industry veteran Tom Albanese, a Rio employee for 30 years, was accompanied by the announcement that Sam Walsh, previously CEO of the iron ore division, is to take over with immediate effect.
So here are the key directors:
| Director | Position |
|---|
| Jan du Plessis | Chairman |
| Sam Walsh | Chief Executive |
| Guy Elliot | Finance Director |
Shoe-in
Australian Mr Walsh is an obvious shoe-in. Iron ore is Rio's biggest division, contributing nearly three-quarters of operating profit, and Mr Walsh has been running it since 2004. Prior to that he ran the aluminium division for three years. He joined Rio in 1991, after 20 years in the automotive industry with General Motors and Nissan.
Mr Albanese took a fall for strategic errors in acquisitions, but more important for investors will be Mr Walsh's skills in operational management. His previous roles suggest he's well qualified. And it's a smooth succession.
That's important, because Rio's long-serving finance director Guy Elliot has said he will leave by the end of the year. Replacing the CEO with an external hire now would mean a complete changeover of the executive team.
A former investment banker, Mr Elliot joined Rio in 1980, undertaking a variety of marketing, planning and development jobs, becoming finance director in 2002. He also had responsibility for Rio's strategy until this year when it was separated out in anticipation of his departure. He is one of just a few FTSE 100 finance directors who are not qualified accountants.
Plaudits
Ironically chairman Jan du Plessis is an accountant, having spent much of his career in finance functions in the tobacco industry, initially in his native South Africa. He has been chairman since 2009, and seems to have won plaudits in the City for the swift and clinical way he secured the removal and replacement of Mr Albanese. That's in stark contrast to the lingering end of Cynthia Carroll's tenure at Anglo American.
Rio has nine non-execs in addition to the chairman. They have a variety of backgrounds, and include a former finance director of BHP Billiton and John Varley, Barclay's former CEO.
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.
Very good. | Score 4/5 |
2. Performance. Success at the company.
Good. | Score 3/5 |
3. Board Composition. Skills, experience, balance
Good but lacking external hires to executive positions. | Score 3/5 |
4. Remuneration. Fairness of pay, link to performance.
Executives forewent bonuses last year. | Score 3/5 |
5. Directors' Holdings, compared to their pay.
Substantial. | Score 4/5 |
Overall, Rio Tinto scores 17 out of 25, a middling result. The two executive directors are seasoned and experienced company men, but the abrupt change of CEO and forthcoming departure of the FD is unsettling.
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 Rio Tinto but no other shares mentioned in this article.
