What you need to know about the top executives of professional information provider Reed Elsevier plc (LON:REL).
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 Reed Elsevier (LSE: REL) (NYSE: RUK.US), the provider of information to business, the sciences and professions.
Here are the key directors:
|Anthony Habgood||(non-exec) Chairman|
|Erik Engstrom||Chief Executive|
|Duncan Palmer||Finance Director|
Reed has a complex governance structure, born of the 1993 merger of the UK and Dutch businesses. The UK listed company and the Amsterdam-listed Reed Elsevier NV each own 50% of the operating company, Reed Elsevier Group. The three boards share the same directors.
Anthony Habgood has been chairman since 2009. He’s also chairman of FTSE 100 firm Whitbread. He started his career as a management consultant with Boston Consulting Group and was credited with turning around distribution group Bunzl as its CEO and executive chairman between 1991 and 2005.
Mr Habgood had barely joined when he fired Ian Smith, Reed's externally-appointed CEO of just nine months, and appointed insider Erik Engstrom who was then running the Dutch arm. A Swede, Mr Engstrom also started his career with a prestigious management consultancy: McKinsey. The bulk of his career has been engaged in publishing, including stints as CEO of Bantam Doubleday Dell and President of Random House. He joined Reed in 2004.
He has continued the strategy of Mr Smith's predecessor, resisting calls for a break-up and shifting the business towards online and software based solutions and away from print publishing. Whilst not earning overwhelming plaudits, this has borne fruit in the past twelve months, with the shares up 50% on the back of better-than-expected profits in 2012.
Duncan Palmer has been finance director since last November, replacing Mark Armour who as FD for 16 years had been a major player in the company's earlier transformation, but who paid the price for indifferent performance.
A chartered management accountant, Mr Palmer was previously CFO of Fortune 500 fibreglass-maker Owens Corning, and had earlier worked in finance roles with Shell.
Reed's seven non-execs have a good balance of experience, with a bias towards information industries. That's no doubt of help in keeping track of which of the three boards they are attending.
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.|
|3. Board Composition. Skills, experience, balance|
Very good, but complex structure and chairman with two FTSE 100 jobs.
|4. Remuneration. Fairness of pay, link to performance.|
High-ish, including £0.5m for part-time chairman.
|5. Directors’ Holdings, compared to their pay.|
CEO has £800k-worth, chairman £380k (less than a year's fees), FD is new.
Overall, Reed Elsevier scores 13 out of 25, a poor result. A good result last year might herald better times for a troubled board, but a long-standing CEO should have more invested in the business.
I've collated all my FTSE 100 boardroom verdicts on this summary page.
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> Tony owns shares in Shell, but no other shares mentioned in this article.