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 Melrose (LSE: MRO), the company that acquires, improves and then sells engineering businesses over a three-to-five year cycle.
Here are the key directors:
| Director | Position |
|---|---|
| Christopher Miller | Executive Chairman |
| David Roper | Executive Vice Chairman |
| Simon Peckham | Chief Executive |
| Geoffrey Martin | Finance Director |
Unique
Melrose is unique in that the board is, effectively, the company. Its business model is to buy underperforming but fundamentally good manufacturing business, turn around their performance, and then sell them. Thus the management, rather than the activities, is the constant.
The management team also pre-dates the company. Christopher Miller, David Roper and Simon Peckham worked together at the acquisitive industrial conglomerate Wassall in the 1990s. They formed Melrose after Wassall was taken over in 2000, floating it on AIM in 2003 with a market cap of £10m, moving to the main market in 2005 and entering the FTSE 100 in 2012. A planned sale of £0.5bn-worth of assets and return of cash to shareholders is likely to push the company out of the FTSE 100.
The Grinder
A chartered accountant, Christopher Miller learned his acquisition skills at industrial conglomerate Hanson. He joined Wassall as CEO in 1988. Also a chartered accountant, David Roper worked in corporate finance with Warburg’s, Barclays and Dillon Read. Also joining Wassall in 1988, he became deputy CEO in 2003, acquiring the nickname of ‘The Grinder’ for his detailed financial analyses of target companies.
Simon Peckham qualified as a solicitor and worked in RBS‘s equity finance unit before joining Wassall in 1990, joining its board in 1999 as corporate development director.
Geoffrey Martin is the outsider, joining Melrose in 2005 as finance director. A chartered accountant, his previous career was a Royal Doulton, joining in 1996 and rising through the finance ranks to become finance director from 2000 to 2005, covering a period of major financial restructuring.
Corporate governance
Melrose flouts corporate governance codes with an executive chairman. Mr Roper stepped up from CEO to executive vice chairman last year (when Mr Peckham stepped up from COO). It is one of very few FTSE 100 boards to be all male. With four non execs, albeit all with impressive backgrounds, the board is weighted towards management.
What’s more, the management have enjoyed private equity-style rewards, with a scheme paying out 10% of the increase in shareholder value between 2007 and 2012. But investors have been content with Melrose’s performance.
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. Unmatched. |
Score 5/5 |
|
2. Performance. Success at the company. Excellent. |
Score 4/5 |
|
3. Board Composition. Skills, experience, balance Great individuals, lack of oversight. |
Score 3/5 |
|
4. Remuneration. Fairness of pay, link to performance. High but uncontroversial. |
Score 3/5 |
|
5. Directors’ Holdings, compared to their pay. All in £10m to £50m range. |
Score 5/5 |
Overall, Melrose scores 20 out of 25, a very good, if idiosyncratic, result. The board is far from being a paradigm of good corporate governance, but shareholders have been happy to overlook that.
I’ve collated all my FTSE 100 boardroom verdicts on this summary page.
Buffett’s favourite FTSE share
Legendary investor Warren Buffett has always looked for impressive management teams when picking stocks. His recent acquisition, Heinz, has long had a reputation for strong management. Indeed Mr Buffett praised its “excellent management” alongside its high quality products and continuous innovation.
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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 does not own any shares mentioned in this article.
