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 Persimmon (LSE: PSN), the house-builder that rejoined the FTSE 100 in June after it fell out of the index in 2008.
Here are the key directors:
| Director | Position |
|---|---|
| Nicholas Wrigley | (non-exec) Chairman |
| Jeff Fairburn | Chief Executive |
| Miles Killoran | Finance Director |
| Nigel Greenaway | South Division CEO |
A qualified accountant, Nicholas Wrigley works as an M&A advisor at Rothschild, one of the few FTSE 100 chairman still in an executive job. He has been on the board since 2006 and stepped up to chairman in 2011 when the previous incumbent retired after 32 years with the company.
New CEO
Jeff Fairburn has only been CEO since April. He joined the firm in 1989 and rose though management positions, mainly in Persimmon’s northern division. He was appointed to the board in 2009 and became group managing director, responsible for operations and the land bank.
However that’s too recent for him to share credit for Persimmon’s record as the only listed house-builder that didn’t need shareholder cash after the financial crisis. Since his appointment, Persimmon has inaugurated a programme to return excess cash to shareholders.
Crisis
Mike Killoran has been finance director since 1999, so can take credit for successfully steering Persimmon through the financial crisis, playing a leading part in downsizing the business and renegotiating bank loans. A chartered accountant, he joined the firm in 1996 after finance roles in other northern companies.
Nigel Greenaway joined Persimmon in 1986. He assumed responsibility for the southern division in 2005 and was elevated to the board in January this year.
Four non-execs are led by Richard Pennycook, finance director of the Co-op Group and formerly William Morrison. They have a mix of backgrounds but the lack of cross-directorships with other FTSE 100 companies points to Persimmon’s relatively junior status in the index. They equal in number the three long-serving executives and a chairman who has been on the board for seven years.
Shareholder revolt
22% of Persimmon’s shareholders voted against the most recent remuneration report after the UK shareholders’ Association came out against a “golden goodbye” for the outgoing CEO and a long-term incentive plan under which most of the grants had already been made.
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. Good. |
Score 3/5 |
|
2. Performance. Success at the company. Strong. |
Score 4/5 |
|
3. Board Composition. Skills, experience, balance. Logical but entrenched management. |
Score 3/5 |
|
4. Remuneration. Fairness of pay, link to performance. See above. |
Score 2/5 |
|
5. Directors’ Holdings, compared to their pay. CEO has £1m-worth of shares, FD £6m. |
Score 4/5 |
Overall, Persimmon scores 16 out of 25, just under the median result. The company’s “owner-manager” ethos and longevity of management has served it well through the crisis and into the resurgence of the sector, but external oversight is relatively weak for a FTSE 100 company and management have perhaps been a little greedy.
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.
