What you need to know about the top executives of pharmaceuticals group Shire PLC (LON: SHP).
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. I hope to separate the management teams that are worth following from those that are not. Today I am looking at Shire (LSE:SHP) (NASDAQ: SHPG.US), the smallest of the FTSE’s pharmaceuticals groups, best known for its ADHD drugs.
Here are the key directors:
|Matthew Emmens||(non-exec) Chairman|
|Angus Russell||Chief Executive until 29 April 2103|
|Dr Flemming Ornskov||Chief Executive from 30 April 2013|
|Graham Hetherington||Finance director|
Matthew Emmens joined Shire in 2003 as CEO, stepping up to become chairman in 2008 much to the disquiet of the guardians of the UK corporate governance code. It gives him detailed knowledge of the company, at the expense of some independence. His career before Shire was spent with Merck, including being head of its global prescription drugs business.
At the same time as Matthew Emmens moved up to be chairman, he was replaced as CEO by the then long-standing finance director Angus Russell. He had joined the group as FD in 1999 after a career with ICI and AstraZeneca. That surely is an unusual swap around of seats, but shareholders can have little to complain about that period of governance: the shares are now worth six times their value in 2003.
Mr Russell announced his retirement last October, and in short order Flemming Ornskov was appointed as CEO designate. They seem to value smooth transition at Shire: he had already been identified for the role of head of the Speciality Pharmaceuticals division and a potential successor to the CEO.
Mr Ornskov was previously chief marketing officer of Bayer, and had earlier worked at a number of pharma groups including Bausch and Lomb, Novartis and Merck, after a career in medicine. Bayer’s brilliant marketing that still makes it $1bn a year from aspirin will no doubt be useful background as Shire struggles with generic competition.
Graham Hetherington is the only one of the top team not to have worked exclusively in the pharmaceutical sector. He joined as FD in 2008 (as Angus Russell became CEO) from drinks company Barcardi where he was FD for just a year, having previously been FD of Allied Domecq from 1999 to 2005. Unusually for a FTSE 100 finance director he qualified as a management accountant.
Shire’s seven non-execs include four from the pharmaceutical and medical sectors, reflecting the company’s distinctive approach to management. Most FTSE boards contain businessmen from a wide cross-section of sectors. There’s also the requisite former finance director and investment banker.
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.|
Very good under outgoing CEO, too early to judge CEO designate.
|3. Board Composition. Skills, experience, balance|
Somewhat idiosyncratic but effective.
|4. Remuneration. Fairness of pay, link to performance.|
|5. Directors’ Holdings, compared to their pay.|
Ornskov has yet to buy but Emmens and Russell have multi-million holdings.
Overall, Shire scores 18 out of 25, a reasonable result somewhat held back by the changeover of CEO. The company seems to be happy doing things its own way, and its long-term performance suggests that works.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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> Tony owns shares in AstraZeneca, but no other shares mentioned in this article.