My Verdict On 5 FTSE Boardrooms

Published in Investing on 7 August 2012

What you need to know about the FTSE’s boardrooms.

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). Today I’m summarising the second batch of five companies, and introducing the leader board for the best – and worst – companies that I’ve analysed so far. I've collated all my FTSE 100 boardroom verdicts on this summary page.

Today’s five companies are Aviva (LSE: AV), BG Group (LSE: BG), Centrica (LSE: CNA), HSBC (LSE: HSBA) and Prudential (LSE: PRU).

Five FTSE boardrooms

I analyse management teams from five different angles. Here's my assessment:

 ReputationPerformanceCompositionRemunerationShareholdingsOverall Score
BG Group5443218
HSBC4323416
Prudential3421515
Centrica4323315
Aviva4222111

BG Group comes out top, with an impressive bunch of executives who have produced results, balanced by a strong non-executive team. They are held back by the miserliness of directors’ holdings.

Whilst BG’s five executives have a chairman and nine non-execs to hold them in check, Centrica’s five executives are barely outnumbered by six non-execs (though there is a plan to recruit a seventh) plus the chairman. That puts a lot of responsibility on city grandee Sir Roger Carr who juggles several other jobs.

HSBC has top-flight managers with sizeable cash investments in the bank. But they have been in place for only two years and HSBC's policy of internal recruitment diminishes the quality of external scrutiny.

Prudential has seven executive directors, who can only just be outvoted by the chairman and seven non-execs. CEO Tidjane Thiam might well have the highest Mensa score of FTSE 100 directors, but a weak-ish chairman and paucity of non-execs may not be a very effective brake on his ambition.

Lacking a CEO, rival Aviva's board is in disarray. The reputation of temporary executive chairman John McFarlane salvages an otherwise abysmal score. Only the finance director has any significant stake in the business.

Leader Board

Including RBS (LSE: RBS), I have assessed 11 FTSE 100 companies so far. This is how the leader board of management excellence stands:

In the top two positions are:

  ReputationPerformanceCompositionRemunerationShareholdingsOverall Score
1.GlaxoSmithKline5433419
2.BG Group5443218

GSK nudges ahead of BG on the strength of its directors’ shareholdings.

Lack of directors’ investment in their own business characterises the race to the bottom:

  ReputationPerformanceCompositionRemunerationShareholdingsOverall Score
1.Aviva4222111
2.RBS3232010

Given the energy that RBS's board has put into defending executive bonuses as being justified by progress made in the turning around the bank, it's surprising that the 12 of them together have less than £2 million invested in it. That gets the only zero I've awarded so far, and is yet another reason not to own RBS shares.

Buffett's favourite FTSE share

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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.

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Further Motley Fool investment opportunities:

> Tony owns shares in BG, HSBC and Aviva but no other shares mentioned in this article.

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