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 Vedanta (LSE: VED), the diversified Indian metals and mining company that bought Cairn India.
Here are the key directors:
|Anil Agarwal||Executive chairman|
|Navil Agarwal||Deputy executive chairman|
|Mahendra S Mehta||Chief executive|
Vedanta is 65% owned by an Agarwal family trust which is entitled to appoint directors to the board, subject to there being a majority of independent directors. So we have controlling shareholders as executive chairman and deputy chairman, and no finance director with fiduciary duties to shareholders.
Vedanta falls into the cadre of FTSE 100 companies where normal shareholders are minority investors in a company run by entrepreneurial founder shareholders, such as Antofagasta, Fresnillo and ENRC. The added dimension in Vedanta’s case is the substantial minority interests within the group with debt carried at operating company level so that, effectively, a relatively small tail wags a big dog.
Scrap metal trader
Anil Agarwal founded Vedanta in 1976. He started as a scrap metals trader and has built the company, with a large number of acquisitions, with the aim of creating an Indian natural resources champion. The story resembles, in some respects, that of the Russian oligarchs. Vedanta listed on the LSE in 2003 since when shareholders have seen an eight-fold increase in the share price before falling back to a little under two-times now.
Navil Agarwar is responsible for strategy and finance. His career has been spent in the Vedanta group.
MS Mehta joined the group in 2000, initially in its zinc business rising to be CEO of that division. He previously worked for Indian steelmaker Lloyds Steel Industries.
Vedanta’s five non execs bring a sensible mix of influence and governance. They include two drawn from the Indian public sector, including a former home secretary and ambassador to the US, a former HSBC banker, a former emerging markets investment banker and a partner of law firm Ashurst.
Vedanta has suffered some bad press in India over environmental, health and safety, and human right issues that might have been more embarrassing for a ‘conventional’ FTSE 100 company. This led to PIRC recommending the senior non exec should not be re-elected in 2010 but he remains in situ.
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
Executive chairmen/owners, no FD. Sensible non execs.
|4. Remuneration. Fairness of pay, link to performance.
|5. Directors’ Holdings, compared to their pay.
CEO has just £400k-worth of shares.
Overall, Vedanta scores 14 out of 25, a fairly poor result. Poor governance does not seem to have been an issue for investors, but the structure provides little independent and transparent oversight of the owners.
I’ve collated all my FTSE 100 boardroom verdicts on this summary page.
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> Tony owns shares in HSBC but no other shares mentioned in this article.